Long term investing: why staying invested matters

As an investor, you face a constant ‘stick or twist’ dilemma: should you stay invested in your chosen assets (stocks, shares, property etc.) or should you opt for the safety of cash (such as a savings account)?

There has been a consistent stream of news headlines about the effects on our investments from the UK government’s Budgets and global political and economic turbulence – and of course this has an impact on our investing mindset. Cash has also looked more attractive as, after 15 years where rates have been very close to (or at) zero, returns have been credible in recent times.

However, so far banks are proving glacial at passing on the Bank of England base rate (4.25% at the time of writing) and we would encourage you to double-check what your bank is paying you.

The decision whether to ‘stick or twist’ can be influenced by a myriad of factors but is fundamental to financial success. While the allure of cash in times of uncertainty is undeniable, a well-considered decision to stay invested often proves the wiser choice. In this article, we will explore the importance of staying invested.

Invest for the long term – growth potential

One of the most compelling reasons to stay invested is the long-term growth potential of assets. Historically, stocks and other investment vehicles have consistently outpaced the rate of inflation and provided substantial returns over extended periods. By staying invested, you can harness the power of compound interest, which can significantly multiply your initial investments over time, giving them the potential to grow exponentially over the long term.

For example, if you had invested in the Canaccord Genuity Risk Profile 3 (RP3) strategy on 30 April 2015 your investment would have returned 87.17% up to April 2025*. This return has significantly outpaced inflation and, even more dramatically, the performance of cash (16%), as can be seen in the graph below, despite the market downturns during this period (Brexit and Covid-19). This shows the potential for substantial wealth creation if you stay invested for the long haul.

Cash simply does not benefit from the same compounding effect as long-term investments.

Real value of cash vs. Canaccord's RPs 3, 4, 5, 6
Source: Sterling Overnight Index Average (SONIA), Canaccord Wealth.

Attempting to time the market consistently is pointless

Trying to time the market by moving to cash during downturns and re-entering during upswings is a strategy fraught with challenges. Even the best-seasoned professionals struggle to make consistently accurate market timing decisions. It’s arguably why (probably) the greatest investor of our time, Warren Buffett, says he has only made 12 ‘truly good’ investment decisions across his lifetime.

The emotional rollercoaster of trying to predict market movements often leads to poor outcomes, as investors may sell during a dip only to miss out on subsequent gains, or stay in cash during a rising bull market, missing out on profits.

The adage ‘time in the market, not timing the market’ encapsulates the importance of staying invested. Investors who maintain their positions through market fluctuations are better positioned to capture the long-term growth trends.

At Canaccord Wealth, we believe asset allocation drives the majority of returns and using this framework forces us to confront tough investment decisions during both bullish and more difficult markets. It also reassures our clients with known positioning. 

Diversification reduces risk

We also believe that diversification is a cornerstone of prudent investing. By spreading investments across various asset classes, sectors and themes, we can reduce the risk associated with market segments. Long term investing enables the maintenance of a diversified portfolio, which acts as a protective shield during market volatility.

Diversified portfolios tend to have a smoother performance trajectory, as gains in some assets can offset losses in others. This risk-mitigating effect becomes especially valuable during economic downturns, when specific sectors may underperform.

The opportunity costs – and even dangers – of holding cash

While cash provides safety and liquidity, it also comes at a cost, as it effectively locks in the opportunity cost of potential returns from other assets. Despite rates being at their highest level in a decade, the real return on cash remains negative after accounting for inflation, so it is still eroding purchasing power over time.

That’s why one of the key pillars in our Canaccord Wealth investment framework is inflation. We encourage our clients to stay invested with us for the long term and are convinced that the best opportunity to maintain the real value of your wealth over that period is through investments.

It is also true that some of the banks that publish the highest and most attractive rates have a lower quality credit rating (from official rating agencies such as Moody’s, Fitch and Standard & Poor’s). 

The psychological benefits of investing for the long term

Investing can be an emotionally taxing experience, especially during periods of market turbulence. Staying invested helps investors overcome the common behavioural biases, such as fear and greed, that can lead to poor investment decisions. A well-structured investment strategy with a focus on long-term goals can help investors weather market storms with confidence.

At Canaccord Wealth, we publish multiple benchmarks (relative comparison indexes as well as our peer group returns). We also encourage clients with a tailored solution and/or an adviser to stay in contact for regular updates and portfolio discussions. We believe it’s essential to create informed investors by educating our clients.

Tax considerations - the benefit of long-term investing

Taxes can significantly impact your investment returns. When you sell assets, you may incur capital gains taxes, which can erode a significant portion of your profits. By staying invested and deferring the realisation of capital gains, you can potentially reduce your tax liabilities.

Other investments, such as the UK gilts (government bonds) position we hold for many clients, can benefit from beneficial tax treatment. Although our chosen investment’s anticipated return is just under 5%, the equivalent return required for a higher-rate taxpayer would be north of 8%.

Economic recovery and growth

Historically, financial markets have demonstrated resilience and the ability to rebound from economic downturns. While market crashes and recessions are inevitable, they are typically followed by periods of recovery and growth. Staying invested allows you to participate in the economic rebound and benefit from the potential upside.

The chart below shows how a long-term fully invested portfolio (the yellow line) has performed since the millennium, when compared with an ‘emotional’ strategy (the red line), where the investor has switched to cash when they are worried about falling markets.

Staying invested vs. switching to cash
Sources: Bloomberg and Canaccord Wealth.