Investing returns for beginners – the good, the bad and the average (2024)

As an investor you’re going to see good, bad and average returns.

But this isn’t a bad thing. In fact, it’s something to embrace.

Here’s why.

Diversification is important

Everyone wants all their investments to do well and to only pick winners.

But in reality, it’s near impossible to always pick the best performing investments all the time – not even history’s greatest investors can claim that accolade. And even trying to do that would just be stressful.

Instead, a diverse portfolio is something we think every investor should aim for – it helps take the stress out of investing. This is a mixture of investments from different industries, countries and types of investments like shares, bonds and property.

You want to do this because certain parts of your investment will do well in some times, and less well in others. And the parts that are doing well will hopefully help pick up the slack of the things that are doing less well.

Depending what’s going on in the world, something that’s good one year, could be bad or average the year after.

Industries, individual companies, countries, and investments all have different economic conditions that will cause them to go in and out of favour. Nothing’s going to be excellent all the time.

In a diversified portfolio, you expect things to be doing well and poorly and average, but overall, you hope they grow over the long term.

The easiest way to build a diversified portfolio is by using funds. Funds pool investors’ money together to invest in a variety of different things. They’re typically run by a manager who makes the buying and selling decisions for you, while making sure the fund is managed to follow its objectives.

Of course, it’s possible to build a portfolio by buying individual shares. However, this can be trickier and investing in individual companies isn't right for everyone. That's because it's higher risk, and your investment depends on the fate of that company. If that company fails, you risk losing your whole investment in it. The cost of transaction fees can also make this more expensive for smaller investments.

Always consider risk

Generally speaking, investments that offer the greatest potential returns come with the risk of more, and bigger, ups and downs.

If you’re investing for retirement or buying your first house, and you’re close to reaching your goal, you’ll probably want to take less risk. That’s because you don’t want your investments shooting up and down in value and being less predictable.

Past performance isn’t everything

When looking at the performance of your investments, it’s easy to look at the percentage and amount they’ve gone up or down and make judgements at face value.

That went down, so I’ll sell it. That went up, so I’ll buy more of it.

You might have bought the correct investment. But you do need to look a bit deeper.

Past performance certainly isn’t a guide to what could happen in the future. And sometimes what looks good at face value might not be the best.

When good could be bad

An investment might have grown, but a similar investment in the same area might have done better. You should see what’s happened elsewhere.

For funds, it’s worth looking at how the manager performed against their peers. They have an IA sector benchmark (an average of how similar funds performed) on the fund factsheet, and you can check to see how they did against that.

But you still can’t rely on past performance to see whether this is something to carry on holding.

Managers have different styles of investing. Some managers might target companies they think are undervalued, others look to find companies they see with high potential to grow.

Their styles can go in and out of favour. So, see how managers with similar styles have fared before discarding them.

And managers with different styles could add another dimension to your portfolio, adding further diversification.

For shares, look at companies in similar industries, their competitors. Part of your research could include looking at certain ratios like the price to earnings ratio – how much investors are willing to pay for every pound of profit a company delivers.

Key investor takeaways

Try to build a portfolio that’s diversified so you usually have something working in your favour.

Review your investments, looking at why they might have performed differently, while looking at how much risk you’re taking and if you’re still comfortable with it.

Use our fund and share research to help you get a better view of an investment and what could be next

Don’t want to pick your own individual investments?

If you need a hand choosing what to invest in or you just want to leave it to an expert, take a look at our new ready-made investments.

You can pick from any of our ready-made all-in-one funds depending on how much risk you want to take. And that’s it. You’ll then just need to check in on it from time to time, to make sure it’s still right for you.

Our experts will manage it and make sure it’s diversified.

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HL’s ready-made investments are managed by our sister company Hargreaves Lansdown Fund Managers Ltd.

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