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How to build a long-term investment strategy with wealth management

An investment strategy systematically guides decisions based on set principles and rules. An effective plan will create an investment portfolio that is tailored to achieve an investor’s specific financial goals based on their current situation, while ensuring it is adaptable to changes in circumstances in the future:

Your budget. Establishing your outgoings every month and how much you have left to save toward your goals.
Your objectives. Your plans for the future and a well-considered strategy for your finances to support these goals
Risk tolerance. Your risk capacity and risk attitude (we’ll look at that in more detail in this guide).
Time span. How much time you will need to attain your goals

A robust investment strategy takes into account a variety of elements, including customary economic trends, current market conditions, and the unique financial circumstances of the investor.

Understanding your financial goals

When it comes to investing, it’s prudent to start with your retirement goals. In effect, you are working towards that long-term goal and your investment strategy is your roadmap that’s going to get you there. That said, there will be other goals that you will probably want to aim for along the way. For example, buying a new home, starting a family and later, your child’s – or children’s – education.

Interesting fact…

13 million UK adults hold £430 billion of “possible investments” in cash savings.

Determining your risk tolerance

Higher risk investments can offer more significant returns but come with an increased potential for loss, while lower risk options provide greater stability with lower yields.

Your tolerance to risk will be determined by your financial situation and your goals. Financial risk tolerance can be broken down into two parts: your risk capacity and your risk attitude.

Your risk capacity relates to your financial situation and goals. Typically, a an investor who is comfortable taking more risks may have a healthy income and a longer investment term plan, allowing them to take on greater investment risks, meaning they have a higher risk capacity.

Your attitude to risk is more about how comfortable you are with investing in less secure options. Centred around psychology, if you find yourself anxious at the thought of any potential monetary losses, this should give you a good idea on the level of your attitude to risk.

When working with an experienced wealth manager, they will help you create a tailored wealth strategy in accordance with your personal risk tolerance. A good wealth manager will work closely with you to ensure they have a strong understanding of your financial goals. They will then come up with ways you can achieve them with investments, savings and a tailored wealth management plan.

Your wealth manager can build strategies to lessen potential losses, all the while ensuring that your portfolio aligns with your risk tolerance.

Working with a professional in this way can bring peace of mind. Knowing you have a plan in place, that your money is working for you and that it will be reviewed as needed should help reduce any financial-related stress.

Short-term vs long-term investing

Short-term investing refers to holding an asset for a year or less. For day traders, this might even be for just a few weeks.

Long-term investing is when you hold an asset for a year or more, though many long-term investment strategies involve holding assets for 5–10 years or more.

Short-term vs long-term investing is how you choose to use different investments based on your financial goals and investment duration. The key difference between short-term and long-term investing lies not in the investment itself, but in how you approach an investment. Both short and long-term investments can include any asset class. For example, a stock can be either a short or long-term investment based on how you decide to use it. If you buy and sell that stock within a month, it’s considered short-term and if you hold it for a number of years, it’s termed a long-term investment.

Knowing the difference between the two means you can compare them.

The pros of short-term investments are:

They can offer the potential for fast profit
They make accessing cash much easier
They are great for generating income for immediate goals or needs

The cons of short-term investments are:

They come with a higher degree of risk
You are likely to have to pay higher tax rates
They necessitate greater active management – they need to be watched closely due to the higher risk levels

The pros of long-term investments are:

They can recover from short-term losses over time
They appreciate in value over time
They can bring returns with compounding interest
It’s likely you will pay a lower rate of tax

The cons of long-term investments are:

They can involve short-term volatility
They make accessing cash more difficult
They won’t bring you impressive profits in the short-term

Image of a man's hand holding a paper and a pen

Asset allocation and diversification

There are many benefits to spreading investments across asset classes to reduce the overall risk of an investment portfolio. Often likened to ‘not keeping your eggs all in one basket’ you can:

Benefit from any one investment offsetting a poorer performing one. By spreading your assets, you are spreading the risk. Diversification is about ensuring your assets don’t correlate too highly with one another. It’s important to remember that no investment can be guaranteed against loss. Diversification is designed to merely reduce the risk.
While market or systematic risk is typically inescapable, diversification can help mitigate unsystematic risk.
You can either choose which assets you want to invest in or you can pick an index fund which comprises various companies and holdings.

Rebalancing

Rebalancing is the process of reviewing and regularly fine-tuning your investment portfolio to stay aligned with your goals and risk tolerance.

It is good practice to evaluate how your investments are performing. This will either give you peace of mind that they are working well for you or it will provide the opportunity to recognise assets that aren’t doing so well so that you can make an informed decision about whether to make changes or to sit it out and keep a watchful eye on the situation.

When it comes to balancing shares and bonds, there is no magic equation, no one-size-fits-all approach. It will come down to your risk capacity and attitude to risk, as well as your current financial situation and goals.

Tax-efficient investing

Tax-efficient investing is a strategy that uses certain portfolio products and accounts to maximise returns and minimise the taxes you need to pay on those returns. The key is to think ahead – about the combination of taxable and tax-advantaged products and accounts that will keep more of your hard-earned cash in play.

To invest tax-efficiently, you need to consider asset location, your investment selection and the timing of transactions.

Tax-efficient investing is important so you can get the most from your efforts.

Regular portfolio reviews and adjustments

As investment markets fluctuate, your asset allocation may require regular reviews and adjustments. Rebalancing your portfolio at least annually ensures it stays aligned with your target asset mix. Additionally, if your financial goals or circumstances change, it’s crucial to reassess your investments to confirm they remain suitable for your needs.

Role of a wealth manager

The role of a wealth manager is to ensure your investments are working as well as they possibly can. They offer professional advice that is tailored to your unique financial circumstances and goals. Due to the nature of investing, you are likely to be working together for a very long time. For this reason – and the fact that they will be looking after your assets – it is absolutely vital that you choose a wealth manager you feel comfortable with; one you feel you can trust.

Professional expertise

They can take care of complex financial planning needs. This includes tax management, retirement and estate planning. And they can keep you on track. With an objective perspective, they are able to maintain discipline through market volatility, potentially preventing emotional decisions that will cost you. By building a personalised relationship with you, over time they become more intuitive about your individual needs.

Call: 0115 795 0423
Email: wealthadvice@jlwm.co.uk

FAQs

What is investment management?

Investment management involves the professional oversight of financial assets and investments to help clients achieve their financial goals. Investment management involves devising strategic plans and executing transactions within a portfolio to optimise returns and manage risks effectively.

How much money will I need to start investing?

This depends on where you want to invest. It can be anything from £1 to several thousands of pounds. Naturally, the more you invest, the more your return potential.

What costs should I expect to pay?

Typically, fees include:

Annual fees. Flat fees charged irrespective of your activity or balance.
Transaction fees. Charged at the point you buy or sell an investment.
Expense ratios. Annual management fees for mutual funds and Exchange-Traded Funds (ETFs), charged as a percentage of the average assets being managed.

Additional resources

We have a variety of wealth management resources available:

If you can’t find what you’re looking for or would prefer to talk about your investment strategy with a professional, contact our team today.

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