"Aviva uses a 10-year chart of the S&P 500 to show that despite the many ups and downs along the way, the long-term trajectory of US equity market values is significantly upwards.”
However, it is important that investors get to grips with their biases so they do not miss out on financial gains.
Andy Miller, lead investment director at Quilter, points to the prospect theory, which states that investors "suffer" losses twice as much as they "enjoy" gains.
Miller adds that this affects investor behaviour negatively in a variety of ways – most notably disinvesting just after a fall in the value of their investments, which means they do not enjoy any subsequent recovery in asset prices.
He says: “Equities in particular give the greatest potential for wealth growth over the long term, and historically has outperformed cash – yet people tend to flee to cash at the first sign of market distress.
“There are two approaches to dealing with this. The first is to ensure that you receive appropriate advice prior to investing, and that your investment is aligned to your attitude to risk and financial goals.
"The second is to recognise that the investment journey is as important as the ultimate destination, and manage investments accordingly.
"We believe a risk-targeted approach is the best means of achieving this, as it ensures the advice matches the investment management.”
A loss of faith
The past few years have seen some investor trust breakdown as typically safe-haven assets have underperformed.
A lot of faith has been lost in active management due to the high fees and failure to beat their benchmarks, according to Elliott Frost, investment manager at Lumin Wealth.
He adds: “An increase in faith would come from active managers delivering value for money, making themselves more competitive compared with passive alternatives.
"Clients appreciate the advantages of active management, but most are unsure about the extra cost.”
Frost adds that investing in a multi-asset portfolio is a long-term approach, and clients must have trust in the process to achieve their goals.
He adds: “A key role of advisers is to educate and guide investors through potential risks and rewards; doing so allows investors to make more informed decisions – and without any knee-jerk reactions – by focusing on the bigger picture and not short-term market fluctuations.
"Diversification is the only free lunch in investing – or almost. But that does not mean it might not be painful in the short term.”
Frost says that Lumin’s advisers aim to build trust by listening.
He adds: “Values like integrity, honesty and transparency should be a key focus. There should be as much separation between advice and sales as possible, and the advice aspect should be proactive rather than reactive.
