Achieving long-term financial goals means accepting the trade-off between risk and reward and appreciating the historical characteristics of different types of investments.
Equities, over the last 20 years, have offered higher long-term returns than bonds, but they’ve also typically carried more short-term risk. The right mix of equities and bonds will depend on how much risk you’re willing to take to achieve an expected return – which depends on why you’re investing and when you need your money. But always remember that the value of investments, and the income from them, may fall or rise and you may get back less than you invested.
The graph below shows the risk/return trade off for equities and bonds. While equities have had some much bigger gains in many years, they have also suffered much bigger losses. Our personal circumstances are unique to us. Everyone is different, so you need to think about how much investment risk you are willing and able to take and still sleep at night.
Always remember that past performance is not a reliable indicator of future results.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The performance of an index is not the exact representation of any particular investment. As you cannot invest directly into an index, the performance shown in this table does not include the costs of investing in the relevant index. Basis of performance NAV to NAV with gross income reinvested. Time period observed: 29 December 2000 to 31 December 2023. Source: Bloomberg, as at 31 December 2023. Indices used: Bonds: Bloomberg Global Aggregate Total Return, hedged in pounds sterling. Let's look at equities. FTSE All-World Total Return, in pounds sterling.
In order to reduce your risk, you need to diversify – that is, spread your portfolio across a broad mix of assets. Diversifying your portfolio can help smooth out returns through market ups and downs because returns from better-performing investments help offset returns from those that aren’t performing so well.
We believe that successful investing begins by setting measurable and attainable investment goals and developing a plan for reaching those goals. Keeping this plan on track means evaluating progress on a regular, ongoing basis.
Whatever investments you choose, you increase your chance of outperformance by focusing on those with lower fund costs. That’s because the lower the charges, the more you get to keep of any return the funds achieve. Remember that fund costs are incurred regardless of fund performance.
Although the asset allocation decision is one of the cornerstones of any investment strategy, it only works if you stick to it over time and through varying market environments.
Important information on investment risks
Investing involves risks. The value of the investments and the resulting returns may rise or fall, and investors may suffer losses on their investments.
Important risk information
Past average returns are no reliable indicator of future investment results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Important information
Vanguard Investments Switzerland GmbH only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product(s) described in this document, please contact your financial adviser.
The information contained herein is not to be understood as an offer or solicitation to make an offer to buy or sell securities in any jurisdiction where such an offer or solicitation is unlawful, or to persons to whom such an offer or solicitation may not legally be made, or when the person making the offer or solicitation is not qualified to do so The information does not constitute legal, tax or investment advice. You should therefore not rely on the content when making investment decisions.
The information contained in this document is for educational purposes only and is not a recommendation or solicitation to buy orsell investments.
Published by Vanguard Investments Switzerland GmbH.
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