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Following a period of market weakness, with negative geopolitical news driving markets, investors have been given pause for thought. With the current bull market in shares nearly a decade old, some are wary of how much longer it can last. Is it time to hunker down and turn defensive?

Don’t be shaken from your long-term strategy

Market falls are a natural part of investing and, sadly, notoriously difficult to predict. It is worth remembering that the longer you invest for the greater your chances of a positive return, which is why most people suggest you should only invest in equities if you are committed to do so for a minimum of five years. This allows you to ride out the inevitable peaks and troughs.

Trying to time the market – selling at peaks and buying at troughs – is exceptionally difficult and you risk being left behind if the assets you sell carry on rising in value. Even if you time your sales well you will still have to choose an opportune moment to buy back in, which can be tricky. In the meantime you miss out on an important element of investing: income, be it in the form of dividends from equities, rental income from property or interest from bonds. This is why most investors choose to remain invested, rebalancing their portfolios as asset prices move but never selling out completely.

Strength through diversification

Diversifying a portfolio – blending a range of investment areas with different characteristics – can help control risk and help ensure you are not overly reliant on one area or a single economic scenario. If one of the investments is performing poorly another could be making up for it, so it means a less bumpy ride for your portfolio overall. Over the long term each can still contribute towards performance – assuming they are well chosen – thereby improving the return achievable for a given level of risk.

It’s particularly important to avoid building a portfolio where the components are all aligned to the same trends and essentially move in tandem. Although equities have historically provided the best returns, using other assets such as bonds, property and alternative investments such as targeted absolute return funds can reduce risk while still generating decent performance over the long term. It is worth rebalancing a portfolio periodically so that the different elements don’t stray too far from the intended proportions.

Instant diversification from funds

Collective funds such as unit trusts and investment trusts can offer convenient building blocks for a portfolio. These spread your investment – and risk – across dozens of different companies and are either ‘actively’ managed by a professional fund manager or designed to simply track a particular index with a ‘passive’ approach.

You can, for instance, find a list of ideas covering both types on the Charles Stanley Direct Foundation Fundlist, our list of preferred investments across the major sectors. Owing to the fact that each fund is a portfolio of shares or other assets in its own right, albeit usually specialising in a certain area, you can construct a well-rounded portfolio by using a range of funds in different areas.

A ‘one fund’ solution?

Building a balanced portfolio to meet your needs from scratch using a range of investments is not straightforward, though. So-called multi-asset or multi-manager funds aim to offer investors a balanced portfolio in a single product, meaning regular monitoring and re-adjustment of individual funds, trusts, shares and other assets is not necessary.

The level of risk taken with multi-asset funds varies, so investors need to be careful they select the right one for their needs. Yet for those who wish to be less hands on – and to avoid the hassle of putting together, monitoring and rebalancing a portfolio of different individual investments – they could be worth considering. Alternatively, they could help make up a “core” of a portfolio around which other, perhaps more specialist, investments can be added. For example, Charles Stanley’s Multi Asset funds are monitored and rebalanced by Charles Stanley experts, each offering a diversified portfolio in one easy-to-buy investment.

This article is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than the original sum invested. Investment decisions in collectives should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and/or Prospectus. If you are unsure of the suitability of your investment please seek professional advice.