When you look at what you want to achieve with your finances in the months, years and decades ahead, it’s all too easy to feel overwhelmed.
After all, in the short term you’re up against ever-rising living costs and all the one-off outlays of everyday life, from school trips to replacing the boiler. Down the line, meanwhile, loom big questions around how you’ll fund a comfortable retirement or perhaps give your children a head start as they fly the nest.
There’s a real danger of procrastinating or becoming paralysed by indecision and nerves when it comes to building your long-term finances. Indeed, research by JPMorgan in 20251 found that almost a quarter of under-35s in the UK aren’t saving any money at all and have no plans to start, with half of that group believing it’s too early to start worrying about such things.
But the reality is that it can never be ‘too early’ to start investing on a regular basis, even if it’s only a little each month. Time is your friend, because not only do you earn returns on your contributions, but over the years those returns themselves generate returns, and so on - a process known as compounding.
Setting goals help you plan
It’s important to have financial goals to work towards. These can take many forms, from specific targets such as a lump sum for a particular purchase to generating a sustainable level of income to supplement your pension, or simply ensuring your long-term savings outpace inflation rather than losing value in real terms when held in cash.
Those goals will help to determine your timeframe and how you invest, in particular your focus on growth or income. In practice, for many investors it makes sense to have a mixture of the two, providing a useful bedrock of regular income but still with potential for capital growth over the years.
Your investment choices will also be shaped by both attitude to risk and timescale. Generally, the longer you can invest for, the better placed you are to withstand the short-term volatility that often comes with higher-risk investments, giving your portfolio more time to recover from market setbacks and benefit from long-term growth potential.
Thus, younger investors with a higher tolerance for risk and longer timeframes might consider investments focused on, for instance, the potential of nimble smaller companies, which tend to reward over the long term but can prove a bumpy short-term ride. Older investors nearing retirement, meanwhile, may place a greater emphasis on preserving capital and generating a relatively dependable income.
Diversification is key
Whatever your goal and no matter how you feel about risk-taking we feel it’s crucial to avoid putting all your eggs into one investment basket. The basic principle of diversification is simple: spreading your interests reduces the risk that trouble for any one stock, or sector, or region, will seriously damage the value of your whole portfolio.
By choosing a ‘collective’ investment such as an investment trust that provides exposure to a portfolio of stocks, you automatically achieve diversification within that market.
Better still, if it’s managed by a respected manager with plenty of experience, a clear investment approach, a track record and a strong support team, you can feel reasonably confident that your investment is well placed to perform better than the market as a whole over the longer term – though of course there are no guarantees.
As your investments grow, it makes sense to diversify more widely and look for exposure to other markets with different influences and strengths, building a portfolio with a range of focuses.
The Mercantile: The home of tomorrow’s UK market leaders
Equity-focused investment trusts such as the Mercantile Investment Trust can play an important role in helping investors work towards a range of financial goals.
As the largest Trust in the AIC UK Equity Income sector2, The Mercantile is a natural route into the dynamism of the UK’s medium-sized companies – those innovative businesses that have established strong markets and brands, and in many cases are able to pay shareholder dividends but still have a potentially exciting growth trajectory and long-term capital growth ahead of them.
One of the advantages of The Mercantile’s investment trust structure is its ability to borrow in order to invest (known as gearing), which can enhance the flexibility of the portfolio and allow the manager to take advantage of attractive opportunities when they arise. The Mercantile has a flexible approach to gearing, typically operating within a range of 10% net cash to 20% geared. Of course, borrowing can also magnify both gains and losses depending on market conditions.
Moreover, The Mercantile is one of a growing number of trusts focused on both capital growth and income that aim to increase the value of dividend distributions year on year as a priority3.
With 13 consecutive years of dividend growth under its belt and its stated aim to grow its dividend at least in line with inflation each year, The Mercantile is recognised by the AIC as one of the ‘next generation’ dividend heroes4. It looks to pay dividends while also carefully building income reserves over time.
For investors looking to diversify into the rewarding UK mid-cap sector alongside the potential for both capital growth and income, The Mercantile offers a long-established approach managed by an experienced team and backed by the extensive resources of JPMorgan Asset Management.
Its strong long-term track record reflects the trust's disciplined investment process and focus on delivering value for shareholders over time.
Making investing work for you
So what should you remember as you embark (or continue) on your financial journey?
Of course you can’t turn back the clock, but the earlier you can start investing, the better. If you’re thinking about setting up a Junior ISA for your newborn child or grandchild, for instance, now’s the time to act.
Regular investing is a great invention. A monthly direct debit straight from your earnings is painless and hassle-free, with the added advantage that ‘drip-feeding’ avoids the risk of a one-off investment at the peak of the market. You can always pay in additional lump sums such as an annual bonus or an inheritance if they come your way.
Even if you’ve chosen your investment wisely, looking at the manager’s long-term track record, investment approach and resources, it’s important to review performance periodically.
But avoid chopping and changing between funds, or panic-selling - ignore market ‘noise’ and remember that investment is a long game, with short-term ups and downs an integral part of the process.
Finally, make sure you use your tax-free ISA allowance each year, and think about using your SIPP allowance too, depending on your pension circumstances. These tax shelters can make a massive difference to the value of your investment over the long term.
