Why Short-Term Returns Can Lead to Long-Term Mistakes

Investments

When markets feel uncertain, it is natural to look for safety.

Right now, with higher interest rates, term deposits can appear attractive. Seeing 5-6% returns, seemingly risk free, can make growth investments feel less appealing, especially during periods when markets are flat or falling.

But this is exactly where long-term investing discipline matters most.

The Illusion of "Safe" Returns

Periods of rising interest rates often coincide with weaker performance from growth assets like shares. These environments can last for a few years, and during that time, term deposits can look like the better option.

However, these conditions are temporary.

Historically, higher term deposit rates tend to ease within 12 to 24 months, settling back closer to inflation levels. Investors who switch during these periods often end up locking in lower long-term outcomes.

Timing the Market Rarely Works

A common reaction during downturns is to move away from growth assets after they have already fallen, often at or near their lowest point, and shift into more conservative options.

The challenge is that markets do not wait.

By the time confidence returns, growth assets have often already begun recovering. Missing that rebound can significantly impact long-term returns.

The Tax Difference Matters

There is also an important factor that is often overlooked: tax.

Income from term deposits is taxed at your full marginal rate, which can be up to 39%. This reduces a headline 5-6% return to something closer to 3.6-4.3% for many investors.

In contrast, growth investments, particularly diversified portfolios of shares, are typically taxed more efficiently. Over time, this allows more of the return to stay in your pocket.

Staying Focused on the Long Term

Successful investing is not about reacting to short-term conditions. It is about staying aligned with a strategy designed to grow wealth over time.

Periods like this can feel uncomfortable, especially for those experiencing their first market downturn. But they are also a normal and expected part of the investment cycle.

The key is perspective.

Short-term certainty can be appealing, but long-term growth is where real wealth is built.

A Steady Approach Wins

At Hallam Jones, we focus on helping clients take a long-term view, building portfolios designed to perform across different market conditions, not just the current one.

Because while markets move in cycles, a disciplined approach helps ensure your financial future does not have to.

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