A far more sensible approach, we believe, is to adopt a long-term, highly diversified and largely passive investment strategy.
Although every investor is different, we believe that index funds, which track an entire market at very low cost, should form the basis of any portfolio. Depending on their attitude to risk, sensible investors also invest to a greater or lesser extent in bonds, which are much less volatile than equities.
In addition, they may choose to ‘tilt’ their investments towards, say, small company stocks or value stocks, which the evidence shows tend to produce higher returns over the long term. Whatever they choose, investors should always keep their costs as low as possible.
But sensible investing also requires discipline. Markets will always rise and fall, and studies have repeatedly shown that investors who try to time the market usually fail. The important thing, during inevitable periods of volatility, is to sit tight and stick to your chosen strategy.
The sensible investing philosophy is based on more than a century of rigorous research - including studies by Nobel Prize winners. That research continues today, and as and when there are new developments in our understanding of how markets work, we will let you know.