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Past returns show that shares outperform all other asset classes over the long term. So why are some of us still wary about investing?

One theory is that some investors become emotionally attached to their investments, instead of focusing on company fundamentals. When the market goes up we want to buy believing that it will continue to rise; when it falls we want to sell, assuming further downfalls.

The current bear market provides evidence of some investor’s emotional behaviour: as share prices have fallen, some investors have lost confidence and sold shares. The reality is that share markets have always reflected enterprise within economies and that is why for many, shares are a long-term investment.

Annual returns from shares often vary more than those from other assets, but historically they still perform better in the long-term. History tell us that between 1870 and 2003 shares provided annual real returns of 6.2%, compared to just 1.7% for gilts and cash.

The 1980’s and 1990’s saw exceptionally high returns from shares and an unusually high ratio of ‘up’ years to ‘down’ years. Many investors who held their shares in the October 87 crash saw them return to their pre-crash values 18 months later. However, we must always remember that share prices and the income from them can go down as well as up.

So how should personal investors behave in a bear market? Well that depends on who you listen to, but the big issue is when to buy and when to sell – invest too early and you may suffer a loss, invest too late and you could miss out on gains while the market rises.

Adopting a business-like approach to investment is the most reliable route to investment success. In any market there are opportunities, but in a bear market you may need to do more homework. Market knowledge and company research should underpin all your trading decisions.

To help investors adopt a business-like approach to investing, Spooner recommends several key factors to consider when managing your investment portfolio:

Consider these factors for managing your portfolio:

By Graham Spooner, investment adviser at The Share Centre