It’s easy to forget that we’re investing for our long-term goals, many of which will not come to be for a decade or more. Even older investors are often trying to leave some of their wealth to the next generation or organizations or entities that can benefit from their generosity.
I want you to look at the graphic below—my very favorite way of looking at the history of investing in the US stock market—and notice how different things look when you stop looking at short-term, one-year returns and start looking at longer periods of time.
From the bottom left to the upper right, the graphic reports the annual return of an investment in a US stock index every year from 1928 to 2022. Each cell is color coded—red is negative, green is positive. Actual returns are not listed because the details are not the point.
Individual investors, and far too many financial advisors, focus only on short-term returns—one-year and three-year results. Think of the diagonal line that goes from the bottom left to the upper right as a barbed wire fence, an analogy I stole from my friend Jeff Troutner who created this piece. Getting tangled up in a barbed wire fence can be really painful. But that’s exactly what happens when you emphasize and make decisions according to short-term returns.
What if we we start looking at investment returns and an investor’s hypothetical experience through a more appropriate intermediate and long-term lens? As you start in any given year at the bottom of the graphic and follow the vertical line upward you begin to look at longer-term returns. How long you look depends on how far up you go—the top of the graphic is through 2022. For example, the white lines that form a diagonal corridor demonstrate the average 10-15 year experience of long-term investors starting every year since 1928. What do you see now?
Greener pastures.
In the very simplest way I can say it, this is what you’re trying to accomplish as an investor, and what I as an advisor are trying to help you to achieve. Greener pastures.
With long-term objectives and a proper perspective of investing, having most or all of your money invested in stocks doesn’t look so crazy, does it? I might even submit that the question transforms from “should we own stocks” to “why wouldn’t we just own stocks”?
As you know, there are barbed wires everywhere—in just the last few years we’ve faced a pandemic, a surge in inflation, a war in Ukraine, bank failures, and the ever-looming debt ceiling issue. You have to find a way to look past them and trust my advice to hang in there; trust our plan and our investment portfolio. There will always be an issue we’re dealing with: economic, political, health-related, to name a few. Your only job is to not get tangled up in these barbed wires so that your savings can eventually make its way to greener pastures.
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To learn more about the Patience Rewarded graphic visit Interactfa.com.
Past performance is not a guarantee of future results. Index and mutual fund performance includes reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or additional expenses except where noted. This content is informational and should not be considered an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.