LONG-TERM INVESTING

THROUGH THE CYCLE

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3
Advising you as a financial adviser.

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GOOD THINGS COME TO
THOSE WHO WAIT

In the short term, investing can often seem a largely random exercise, where success or Theoretical risk/return trade-off of major asset classes
failure is determined by a combination of factors – many of which are beyond our control.

Over the longer term, successful investing can be achieved by adherence to a small
number of easily understood guidelines such as diversification and seeking expert

Potential return
advice. The cardinal ‘golden rule’ for investing is the knowledge of how time can impact
investment risk and performance, and allowing sufficient time for your investment
strategies to achieve their potential.

DIFFERENT INVESTMENTS Cash Bonds Property Equities

CARRY DIFFERENT RISKS Risk/Volatility

When deciding how to invest your money, there are many choices available. Most collective
funds offered by professional investment managers like Fidelity invest into one, or a
combination, of four major categories - cash, bonds, property or equities.
Each of these investments carries a different level of risk, but also different levels of
potential return. The table below provides a basic guide to the characteristics of each.
If you are primarily invested in cash or bonds, then stockmarket wobbles may be of little
consequence. If, however, the majority of your portfolio is invested in equity funds, then
any stockmarket volatility may impact the short-term performance of your holdings.
The important factor to consider is whether your investments are aligned with your risk
tolerance, your time horizon, and your individual goals.

Cash Bonds Property Equities

DIFFERENT INVESTMENTS
Safe, liquid Certificates Any combination Shares in FOR DIFFERENT GOALS
deposits that pay promising that the of residential companies aiming
a regular rate of issuer will pay the housing and to achieve profits
interest – similar investor an income commercial on behalf of Matching your investments to your goals is fundamental to success. If you are saving for
to a bank savings as reward for property, such shareholders.
a long-term goal such as your children’s education or your retirement, then equities may
account. lending them as hotels, office
capital. blocks and be an appropriate strategy and short-term fluctuations in equity prices may be of little
factories. consequence to your overall plan.
Risk Low Low-Med Med-High High If your goals are more immediate, such as a holiday or a new car, then equities may not
Potential Low Low-Med Med-High High be appropriate for your needs and you may wish to consider investing primarily in bonds
return or cash.
Suggested Short-term 3 years 5 years 5 - 10 years Because everybody’s situation is unique, the best course of action is to discuss your
minimum
investment
options with your Financial Adviser.
duration
LOOKING PAST SHORT-TERM VOLATILITY MINIMISING THE CHANCE OF A LOSS

Over the long term, equities and property have outperformed both bonds and cash. Fidelity’s research shows that, historically, the longer you stay invested, the smaller the
Yet equity prices have experienced falls from time to time in the course of their long-term likelihood you will lose money and the greater the chance you will make money. This
upward progress. analysis (see table below) covers a period of 25 years and looks at the different outcomes
over one, five and ten year investment timeframes. The results are based on the returns
Stockmarkets go up and down all the time – this is a normal feature of the way they from European stockmarkets (MSCI Europe – Euros) and international stockmarkets
work. During times of stockmarket uncertainty, it’s only natural to be concerned about (MSCI World Index – Euros).
how this affects the value of your investments.
The table shows that over the period of 25 years from 1981 to 2006, no matter when an
This volatility is why many investment professionals believe you should only put money investor had commenced an investment in a European or Global portfolio, they would not
into the stockmarket if you can take a long-term view. In this way, you give your have made an overall loss provided they remained invested for 10 years or more. In contrast,
investment longer to grow, which should more than make up for the effects of any investors who sold after five years would have run a risk of their investment declining in
short-term drops in the market, as demonstrated below. value, and selling after only one year would further increase the chance of a loss.

MSCI World Index - Basis: Price Index in Euro. Cumulative returns over 1, 5 and 10 years on all
1987 stockmarket crash Investments over:

Source: Datastream 31/12/81 to 29/12/06. MSCI Europe Index - Basis: Price Index in Euro and
105

100
ANY ONE YEAR PERIOD OVER THE PAST 25 YEARS
% of 1 year periods where investors in European market: % of 1 year periods where investors in International markets:
95
MADE money LOST money MADE money LOST money
90
74.7% 25.3% 72% 28%
85
Average annualised return to investors in European market: +12.38% International markets: +11.05%
80
MSCI Europe
75
7 7 7 7 7 7 7 7 7 7 7 7 7 7 87 87
/8 /8 /8 /8 /8 /8 /8 /8 /8 /8 /8 /8 /8 /8 0/ 0/
/9 10 10 10 10 /1
0
/1
0
/1
0
/1
0
/1
0
/1
0
/1
0
/1
0
/1
0
/1 /1 ANY FIVE YEAR PERIOD OVER THE PAST 25 YEARS
30 2/ 4/ 6/ 8/ 10 12 14 16 18 20 22 24 26 28 30

eligible time periods at one month start intervals.

% of 5 year periods where investors in European market: % of 5 year periods where investors in International markets:

MADE money LOST money MADE money LOST money

79.7% 20.3% 77.2% 22.8%

European Stockmarket performance over the last 30 years Average annualised return to investors in European market: +10.74% International markets: +9.32%
Source: Datastream MSCI Europe 31/07/77 to 31/07/07.

4000

3500 ANY TEN YEAR PERIOD OVER THE PAST 25 YEARS

Basis: Total return index in Euro (prev. DM)

% of 10 year periods where investors in European market: % of 10 year periods where investors in International markets:
3000
MADE money LOST money MADE money LOST money
Indexed Return

2500 100% 0% 100% 0%

2000 Average annualised return to investors in European market: +10.26% International markets: +8.68%

1500

1000 So, the simple answer? The longer you can give your investments, the less the
impact of short-term market movements.
500
MSCI Europe

0 Note: You should be aware that past performance is not a reliable indicator of future
results. The value of an investment can go down as well as up and you may get back
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less than you invested.

THE DANGERS OF MARKET TIMING TIME IS ON YOUR SIDE

It can be tempting during times of stockmarket uncertainty to delay making investment If your personal circumstances and investment goals have not changed, and you are still
decisions or to sell existing holdings in the hope of buying back in when values are lower. able to take a medium to long term view, then it is probably appropriate to ‘sit tight’
In theory this sort of “market timing” is an attractive plan, but it seldom works in practice. through any periods of uncertainty.

Just as the sharp falls in stockmarkets tend to occur over short periods of time, the best Remember time, NOT timing, is the key to investing.
gains are similarly concentrated. Because these gains often occur just before, or after, a
market fall - an investor who tries to avoid falls is highly likely to miss the best gains. Fidelity only gives information about its own products and services and does not provide
investment advice based on individual circumstances. If you are unsure whether this
Fidelity has analysed the returns from leading stockmarkets over the period 1997 - 2007. investment is right for you, you should contact a Financial Adviser.
The results show that missing just a few days of good returns can significantly impact
overall performance.

Average annualised returns over 15 years - effect of missing the best days

STAYS FULLY MISSED 10 BEST MISSED 20 BEST MISSED 30 BEST MISSED 40 BEST
MARKET INDEX
INVESTED DAYS DAYS DAYS DAYS

Europe MSCI Europe 11.66% 8.07% 5.52% 3.30% 1.26%

UK FTSE All Share 10.90% 7.87% 5.60% 3.67% 1.95%
USA S&P 500 10.65% 7.22% 4.59% 2.30% 0.37%
Germany DAX 30 10.85% 6.07% 2.50% -0.36% -2.86%
France CAC 40 11.17% 6.80% 3.71% 1.01% -1.36%
Hong Kong Hang Seng 13.35% 6.84% 2.89% -0.38% -3.21%

All figures show annualised, total returns, taken from 15 year periods, starting each consecutive month, from 31/7/92 to 31/7/07,
in local currency terms. Source: Fidelity as at July 2007. Basis: Total return index.

Missing the best ten days (equivalent to less than one day a year) has reduced annualised
returns from all leading stockmarkets significantly.

Missing the best 40 days (less than three a year) over a ten year period would result in
your investment losing money. Far from minimising investment risk, market timing is in
fact a high risk strategy.