Why Low Growth Could be a Good Thing
Investment markets have been difficult to navigate. If you signed up for a long-term monthly investment debit order in the last three to five years, you may have noticed your investment growth is slight or non-existent.
Naturally, you feel worried.
You consider switching to another provider.
You contemplate firing your financial adviser.
You might even pull out of or discontinue the investment.
This seems like a reasonable reaction, right?
Wrong.
Low growth isn’t always bad
It turns out that the appropriate response to the low growth you’ve received in the first few years of your policy is delight. In fact, it may be better than having received high growth.
Allow me to explain.
When you sign up for an investment with recurring contributions, what you are doing is buying into the market a little bit every month – with the view that over time you will have contributed a more significant amount.
The lower (or cheaper) the market is when you buy into it, the more upside you can expect. Conversely, the higher (or more expensive) the market is when you buy into it, the lower your upside will be.
Buying low enables greater growth
It follows then that in the first few years of a longer investment term, you would actually want the market to stay cheap (low growth). That way, more of the contributions that you have put in will have bought in at lower prices, and the majority of your capital will be contributed when the market is low. Then, when the market rises, more of your money will grow with it.
Of course, you need to still make sure that the investment you have chosen is a good fit, that your investment strategy is right, and that the costs are reasonable. This goes without saying.
Focus on what matters most
Unfortunately, we often focus on the wrong metrics – we follow past performance; we buy when the market is already expensive; we transfer money offshore when the currency is already weak, and we stop or start our investments based on the wrong market movements.
So, over the last few years, where returns in many asset classes haven’t been meeting your expectations and your recurring investments haven’t quite provided what you had hoped for, I invite you to consider an alternative reaction: Keep them going and smile. You might just be better off than you think.