Investing long term helps manage risks

In the short-term, returns may vary considerably. This kind of volatility is typical of higher-risk investments such as equities. But, while higher-risk is the price to pay for the potential of good returns, investing for the long-term helps to manage risk and reduce the variability of returns.

Instead of adhering to this sound investment principle, many investors try to time the market. However, a market-timing strategy is difficult, if not impossible, to follow.

The problem with switching between asset classes, is that it requires you to be right twice: once when exiting and once when entering any particular asset class. Now, imagine having to time this decision across asset managers, investment styles and currencies!

Given the short-term volatility inherent in equity investments, how can investors structure their portfolios to have the best-of-both worlds: growth and security?

For most investors, the wise approach to investing is an investment plan that builds a diversified portfolio with a mix of equities, bonds, cash and property based on the investor's needs and risk profile.

Essentially, diversification is about structuring your investment in such a way that it includes a spread of assets with different risk profiles.

This would combine a stable element (bonds and cash) with the opportunity to benefit from the historically higher returns of equities. The exact mix should depend on your needs, risk appetite and timelines.

Contact a professional financial adviser to help you structure and maintain a portfolio tailored to meet your needs.