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Crashing to earth

Short-term investment forecasts less accurate

By Yasmine Masi24 February 2022

HLB Mann Judd’s Wealth Management Partner, Jonathan Philpot, has recommended investors use ten-year investment outlooks instead of those that look only one to two years into the future.

Philpot said ten-year forecasts provide a more accurate reflection of market cycles for investors and allows for possible volatility, as share market volatility continues to ease and likely outcomes progressively narrow each year.

“Investors should only consider share market outlooks for the next five – preferably ten – years. It shouldn’t be a question of, ‘what’s going to happen over the next six to 12 months’, but rather ‘how long do I wish to invest for, and what do I want to achieve’?

“No-one predicted after the initial COVID-19 outbreak in March 2020 that the share market would rise by 37 per cent over the next 12 months, which illustrates the risk of a short-term focus,” he said.

Philpot said the share market would not be an appropriate investment strategy for investors looking to achieve a particular goal in mind in a defined period of time.

“Short-term investment horizons carry increased risk of negative returns, so investing in a secure, fixed-interest type of investment that will likely achieve a smaller comparative return is a better option,” he said.

“For longer-term investors, including those who wish to leave a legacy to children and grandchildren, focusing on expected returns across different asset classes over ten years is a sound financial strategy.

“When considering ten-year forecast returns, investors are able to make gradual changes to their asset allocation – the share market will not become a sell overnight. This will mitigate any emotion-charged decision-making that occurs after a crisis,” he said.

Philpot also warned long-term investors against making any changes to their portfolios, as listed companies continue to announce their financial results.

“Some of these announcements can play into a short-termism mindset, but investors should stay true to their financial strategy.

“Just because a company’s profit has taken a hit or has come under public scrutiny, it doesn’t mean that will continue in the years ahead. It’s too easy for short term investors to buy into headlines,” he said.

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