The benefits of a long-term approach to investing

Investment markets have been going through a volatile period, fuelled by uncertainty over the impacts of rising inflation and the war in Ukraine on global growth. As always at times like these, there has been a lot of comment in the media and many have responded by switching to ‘safer’ investments – or even exiting the market altogether. 

While that’s an understandable response to short-term events, it may also be a costly one. At ANZ Private, one of our fundamental beliefs is that long-term investing outperforms short-term investing. Here we explain why - and how taking a long-term view can deliver better results from your investments. 

Markets are always changing. Over the short term, investment markets can fluctuate in response to world events, economic trends, changing investor sentiment and a range of other factors. 

Sometimes, those fluctuations can be dramatic and unpredictable – for example the huge market swings at the start of the COVID-19 pandemic due to uncertainty about how the pandemic would play out. The 2007/08 Global Financial Crisis is another example. 

Events like these are impossible to predict. But history shows that there are short-term blips – and over the long term, generally markets rise. 

The graph below shows the return on a $10,000 investment across three DIMS strategies over a 16-year period from 2007 to 2022. It also shows some of the major events in New Zealand and around the world during that time. 

Prior to 2015, strategies were invested through the ANZ Private Investment Management Service. Returns are after fees before tax.

Despite significant short-term blips following events like the Global Financial Crisis and the COVID-19 pandemic, investing for the long term allows you to balance out short-term ups and downs - and benefit from when the market rebounds. 

As humans, we don’t always act logically, and investors are no different. Sometimes they are driven by emotions rather than facts. For example, investors following the crowd into complex investments they didn’t really understand was one of the main causes of the Global Financial Crisis.  

That tendency towards ‘herd’ behaviour often causes investors to over-react to short-term events, by selling investments when the price drops (because lots of other people are), and missing out when the price rebounds. It can also lead to the reverse - buying investments when they’re popular and the price is high, when most of the gains have already been made. 

ANZ’s long-term approach is underpinned by a rigorous, highly disciplined process which helps avoid these pitfalls. Our long-term horizon means we can take a more balanced view of the constant ‘noise’ in markets, and stay focused on long-term trends.

Any investment comes with risk – some bigger than others. While you can’t avoid risk, what really matters is how you manage it. 

Our goal is to deliver a strong performance, over time. One stellar year means nothing if those gains are lost the next year. We carefully assess the balance of risk and returns, and the long-term potential, when considering any investment. That’s why our focussed long-term investment approach has delivered strong returns over the long run.

If you’d like to know more about our long-term investment approach, contact your Private Banker.