Investing in equities to achieve your long-term goals

Sameer Mehta, Head of Goals-based Planning

Nataliia Lipikhina, Head of EMEA Equity Strategy

Why should I include equities in my portfolio

Embarking on the road to financial freedom is a deeply personal journey – one that will help you craft a legacy that reflects your unique aspirations. Weaving equity investments into the fabric of your long-term portfolio could be the difference between achieving your long-term goals and falling short of them. And yet, we sometimes find ourselves sitting on cash or taking less risk than we should. While we would like to invest properly and pursue our financial goals, the fear of losing often holds us back.

When we stay in cash, we may alleviate the fear of immediate loss, but we also miss out on something else in the process: significant steps towards our financial goals. We lose out on future lifestyle spending, not to mention wealth that could be passed on to the next generation, or causes dear to us.

Let’s face it, you cannot avoid uncertainty. But you should not let it cloud your ability to make thoughtful financial choices. So how do we overcome indecision when faced with these consequences?

How much of my portfolio should be in equities?

The amount of equity exposure you require depends on what you are trying to achieve. Ultimately, you are crafting a narrative that gives you the freedom to pursue your objectives. Your long-term plan should start with understanding your goals and should always be outcome oriented. Our Goals-based framework helps you organise your thoughts around wealth.

Your equity allocation can vary. Despite potential risk, it is important to remain invested. Success comes from time in the market, not timing the market.

Cash is not always king. It is important to retain some access to liquidity. However, holding on to too much cash can prevent you from reaching your long-term goals. J.P. Morgan Asset Management’s outlook for global equities for the next 10 years is 7.8%, which is significantly above cash expectations.

Integrating equity into your plan isn’t just a financial decision – it’s a personal commitment to building a life and legacy that aligns with your identity.

What are the benefits of holding stocks for the long-term?

Thinking about preserving your wealth for the next generation or beyond? A higher allocation in equities allows you to harness the power of compounding, while your extended time horizon should afford you some resilience in the face of any volatility that you may experience. Maintaining a long-run mindset is key. While markets can always have a bad day, week, month, or even year, history suggests investors are less likely to suffer losses over longer periods. While rolling 12-month stock returns have varied widely since 1950 (+60% to -41%), annualised returns over any ten-year rolling period has been 11.4% for the last 70 years.

Of course, we know that market fluctuations can be concerning. But over time, a robust plan that encompasses economic growth, innovation and portfolio construction can pay off. We have confidence in the outlook for corporate earnings and this is what will drive equities, alongside dividends.

Diversification is another crucial advantage of maintaining a long-term stock portfolio. By spreading your investments across various sectors, industries, and geographic regions, you can reduce the impact of poor-performing assets. This risk mitigation strategy helps navigate the inherent volatility of the stock market. A diversified portfolio ensures you have exposure to various opportunities while minimizing the impact of any single underperforming stock.

How to balance your risk tolerance with your financial goals

Your lifestyle bucket may not be able to endure a high degree of uncertainty. An investment strategy in line with your risk tolerance, will allow you to stay invested through market cycles while keeping your overarching goals in sight.

You might take a longer-term view for your legacy, or growth buckets. If you have the ability and capacity to take on more risk, you could supplement a core portfolio with satellite strategies that offer a higher potential upside – but this always comes with a higher degree of uncertainty. Right-sizing risk is key to staying invested for the long-term. In the coming months and years, we are excited about some of the sectors we can gain exposure to by way of the equity market, including Artificial Intelligence.

A well-considered investment plan is the best way to control your financial future. That’s why we build goals-based plans in the first place. Remember that building a structure simply won’t suffice on its own – you must also ensure that you invest your wealth wisely, and then remain invested through various market cycles.

You work hard to create your wealth, so take a moment to reflect on its purpose. What would you like it to achieve for yourself, your family and your community? Speak to your J.P. Morgan team We can help to instill your investments with a defined impetus. Discover more here.