ISA 2019: How doing nothing can save you almost £12,000 in a decade

There always seems to be a reason to put off investing. Indeed, there have been 29 reasons over the past 30 years, according to Schroders. From war to recession, dotcom bubbles to Brexit, the possibility that we will lose money often means we sit on cash rather than putting our money into the stock market.

Today times are definitely uncertain: at the time of writing, Theresa May’s Brexit deal has been rejected by Parliament yet again and, 16 days before we are due to leave the European Union, we still have no idea what will happen.

But if the past decade is anything to go by it is longevity in markets – rather than trying to time them -which will serve investors best in the long-term.

Consequences of missing the best days

History has shown us markets reflect the adage that it is darkest before dawn.
Although it is not impossible to time the market, even professional investors would tell you it is extremely challenging and, while you may well miss some bad days, it leaves you open to missing out on the good days too.

Missing those good days or months is perhaps the single biggest mistake any investor can make.

For example, if you had tried to time your investments and missed the 10 best-performing months for the FTSE 100 in the past 10 years, you’d have only seen a return of 29.66%* on your initial investment, whereas if you’d remained fully invested the whole time, the return would be 154%*.

In monetary terms, if you invested a full stocks and shares ISA allowance in 2009 (£7,200) and remained fully invested, you’d have £18,288* today compared with £9,335* if you tried to time the market – a difference of £8,953.

The story is even worse if we were to look at a global index (the MSCI AC World), where a £7,200 investment held for the entire term would now be worth £23,417*, while an investor missing the best 10 months would have less than half that amount: £11,554*.

Below are two UK equity and two global equity funds which you might like to hold for the next 10 years.

JOHCM UK Dynamic

Fund manager Alex Savvides invests in UK companies that are undergoing substantial positive change that he believes is unrecognised in the current share price. Each holding in the 45-stock portfolio must pay a dividend. The fund currently has 55.9%** invested in FTSE 100 companies, with BP (5.8%**) and Shell (5.7%**) its top two holdings. The fund pays a historic yield of 4.17%**.

Rathbone Income

This fund invests in small, mid and large-sized UK companies with a focus on dividend-paying stocks. There is also the flexibility to invest up to 20% in foreign firms. Manager Carl Stick has been at the helm for almost 20 years. Two-thirds of the fund is currently invested in FTSE 100 companies (67.78%**) and has its biggest sector weightings are in consumer services (17.27%**) and consumer goods (17.12%**).

M&G Global Dividend

This global portfolio invests in a diversified group of companies with the aim of delivering a rising yield, and a good total return, in the future. The fund has almost half (48.8%**) of its assets in US equities with methanol provider Methanex Corporation its largest holding at 7.6%**.

Fidelity Global Special Situations

Manager Jeremy Podger builds his portfolio around three investment themes: corporate change; exceptional value; and unique businesses. The portfolio is typically well diversified with between 100-150 stocks and Alphabet Inc (3%^) is currently its largest individual holding.

 

*Source: FE Analytics, total returns in sterling, FTSE 100 and MSCI AC World index, 30 January 2009 to 7 March 2019.

**Source: Fund fact sheets, 31 January 2019

^Source: Fund fact sheet, 28 February 2019

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.