With investment markets reacting badly to the credit crisis, investors could be forgiven for wondering just what they should be doing to ensure that they are getting the best possible returns.

In fact, the way markets have been behaving over recent months forcefully reinforces the message that we have been giving for some time; that all investments need to be viewed as long term, other than deposits that offer immediate access without penalty, such as bank and savings accounts. So there is not need to loose investment confidence.

There are several reasons for this. First, there are always costs associated with any form of investments (even bank accounts, although these can be far from clear since the principal cost is simply reflected in the low interest rate paid to savers, compared with the money banks charge). These charges need to be taken into account when considering how long you are likely to be investing for. If you are saving for five years, an initial cost of, say, 5% is likely to represent only a modest proportion of the overall anticipated investment return. If, however, you are looking at a shorter term, the same initial cost could loom much larger, compared with the potential return. This means that it is seldom viable to consider investments that carry higher charges unless you are in it for the longer term.

Secondly, almost all investments such as equities, bonds and even (as we are seeing now) property can be volatile, with values fluctuating on a day-to-day basis. Where time horizons are short, rapid changes in values can be magnified; over longer periods, these tend to be less significant, being mitigated by longer term trends.

For example, while the FTSE100 fell by 1.34% during the second quarter of 2008, it has grown by almost 42% during the past five years, putting short term results into perspective.

Thirdly, access can sometimes be restricted when markets are moving quickly. This is particularly true of commercial property funds, where (as has recently been seen) insurance companies or fund managers can delay paying out to investors for up to a year, if they decide that a net outflow of monies might result in the need to sell property on a falling market.

Of course, few of us simply have one investment horizon. For the majority of people, part of our money is set aside for short term needs such as clothes, holidays and so on; some for the medium term such as replacing a car, or furniture, and some for the long term, such as a child’s wedding, helping educate grandchildren, or retirement. The strategy followed for managing your wealth will depend very much on which time frame is being considered and how much risk is acceptable; not just the risk of losing your money, but also the risk of relative underperformance, or unacceptable volatility. These risks can be managed.

One way of doing so is to pay careful consideration to asset allocation; ensuring that you do not ‘put all your eggs in one basket’ but similarly do not take on unusual assets simply to achieve diversification.

And remember, selling on a falling market is rarely the best thing to do. When markets are at low levels could be the best time to buy.

The value of investments is not guaranteed; you may get back less than you put in. It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact Robert Bruce Associates.