"Time in the market beats timing the market" is an adage thrown about in the sea of verbiage that aspiring and sophisticated investors sail on. Constant exposure over time seemingly removes the worry of volatility so that any storm can be ridden out with sufficient time at sea, but to curtail these maritime metaphors from going on any further, the point of this week's blog is thus, in this world of self-executing financial transactions, as the technology dilutes what was once uniquely tailored advice down to a succession of button clicks, are investors missing out on having their short to medium terms requirements met, simply by an unwillingness to look at capital market recovery times, In a world emboldened by booming technology plays, how hot are the "hot hand fallacy" hands getting? Should medium-term investors be worried about double-digit drawdowns in equities in a world of aggressive global tariffs? Read on to find out.
The consensus in the media is that regardless of the economic effect of a global trade war, tech stocks are still hot, and the likelihood of another booming year in equities is high. It's a thin argument to suggest that long-term participation in capital markets won't yield fantastic results as, ultimately, as we have touched on before, you are betting on humanity's ability to continue to industrialise, but for medium-term investing to demand a reliance on returns, this notion becomes problematic. The hot hand fallacy mentioned in the prologue is the mistaken belief that a person who has experienced a streak of success is more likely to continue succeeding in future attempts, even when each attempt is independent. It originates from basketball, where people often believe a player who has made several consecutive shots is "hot" and more likely to make the next shot, despite no statistical evidence that their probability of success has changed. This fallacy arises because humans are inclined to see patterns in randomness, attributing meaning to streaks or clusters of outcomes, even when purely due to chance. It's particularly prevalent in forms of technical analysis used in the media; something extraordinary happened in equities last year, so why shouldn't it happen again?
According to data from Charles Schwab, in the last 20 years, the S&P 500 has seen 10%+ pullbacks in roughly 10 out of 20 years, so even though the frequency of these pullbacks is standard and often as deep as 15%+ and were almost all the result of largely unforeseen macro circumstance, it's seen as a doomsday scenario rare in its occasion. Ultimately, these pullbacks are healthy and part of the ebb and flow of capital markets (the last maritime metaphor). Still, for investors seeking the precision of gains in any set period, this sort of movement can destabilise one of the most critical issues in investing: what are you looking to achieve? So now you are sold on fixed income mechanics as part of a diversified portfolio; how can those options be enhanced to capitalise on a higher yield?
Peer-to-peer (P2P) lending backed by real estate in the UK closely mirrors fixed-income investments for several compelling reasons, primarily due to its predictable cash flows and asset-backed security. In these arrangements, investors lend capital to borrowers for property development, refurbishment, or acquisitions and receive consistent interest payments, much like bond coupons. The real estate serving as collateral provides a tangible safety net, mitigating default risks and adding a layer of protection akin to secured bonds. Furthermore, the fixed loan terms and pre-agreed interest rates ensure a steady, reliable income stream, which appeals to investors seeking stability.
The resemblance to fixed-income instruments is further enhanced by the transparency and structure inherent in P2P real estate lending platforms, which often allow investors to diversify their portfolios across multiple properties or projects. The UK’s relatively stable property market, supported by strong demand and a robust regulatory framework, adds additional security, fostering confidence among investors.
The critical point here is the low correlation of real estate-backed investments with traditional stock market fluctuations, which provides diversification benefits, making our asset class particularly attractive for those looking to balance their investment portfolios while maintaining moderate risk profiles.
In conclusion, while the allure of timing the market or riding the wave of a booming sector like technology may seem enticing, the unpredictability of short- to medium-term equity performance can be a significant obstacle for investors with defined financial goals. Fixed income and P2P real estate investments offer a more stable and predictable alternative, bridging the gap for those seeking dependable returns without the rollercoaster of market volatility. By combining the stability of fixed-income instruments with the moderate risk and higher yields of actual estate-backed P2P lending, investors can craft portfolios that better align with their unique timelines and objectives.
Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com
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