The importance of investing in shares

For years, many investors in Malta and across Europe have preferred bank deposits and bonds over shares. The preference is understandable: deposits are viewed as secure, while bonds can provide fixed income and the prospect of capital repayment at maturity, provided the issuer does not default.

But safety and certainty come at a cost. Fixed-term deposits can penalise early withdrawals, and bond prices may fall before maturity as interest rates and market conditions change.

Inflation is another crucial consideration. Even when capital is repaid in full after 10 or 15 years, it will often buy less than it does today. In other words, the value of money declines over time if returns do not keep pace with inflation, and that silent erosion can materially weaken an investor’s real wealth.

Many investors choose bonds because they are cautious or rely on investment income to support their lifestyle, particularly in retirement.

Excessive reliance on deposits and bonds may therefore preserve nominal capital but still leave investors worse off in real terms while causing them to miss the long-term growth potential that equities can provide.

Over the long term, equities have historically delivered stronger returns than bonds, although they also involve greater short-term volatility. That volatility can discourage investors, even when the long-term case for equity exposure remains compelling.

The solution is not to abandon caution, but to build a more balanced portfolio.

In our experience, investors who gradually introduced equities into their portfolios achieved broader diversification and gave their capital a better chance to grow over time.

This does not mean changing asset allocation overnight. Investors with little or no equity exposure should consider introducing it gradually, ideally through diversified vehicles such as active funds or exchange-traded funds. This can help them understand how equity markets behave before deciding whether direct share investing is right for them.

The time horizon is critical. Equity investors need patience, because markets can remain weak for extended periods before recovering.

Recent market cycles have shown that, after periods of economic uncertainty, geopolitical tension and sharp declines, equities often recover faster than many investors expect. For those with a long-term perspective, disciplined exposure to shares can play an important role in preserving and growing real wealth.

This article is intended for general information purposes only and does not constitute investment advice, or an offer, invitation to buy or sell any financial instruments. Investors should remember that past performance is no guide to future performance and that the value of investments, and the income derived from them, may go down as well as up. If you invest in products mentioned in this Article, you may lose some or all of the money invested. Jesmond Mizzi Financial Advisors Limited is licensed to conduct investment services business by the MFSA under the Investment Services Act and is a member of the Malta Stock Exchange. The directors or related parties, including the Company and their clients, may have an interest in securities mentioned in this article.For more information, contact Jesmond Mizzi Financial Advisors Ltd of 16 Central Business Hub, Mdina Road, Attard ATD9036 on 21224410, or e-mail info@jesmondmizzi.com.