The Proven Strategy for Positive Returns:
Not What You Would Think
If there is one thing that most investors would like right now in these chaotic 2021 COVID times, it is a guarantee. If we could know for certain that our investments will generate positive returns, there isn’t much else we could ask for. Volatility over the past 12 months has made us all more uncertain than ever before. Although a complete guarantee is not possible, venture capitalist Morgan Housel has shared his thoughts on the best way to set your investments up for success.
One of the most important aspects of investing is the time horizon of your investment. A time horizon refers to the length of time you will hold an investment before you need your money back. There are many debates on what the best time horizon is for different goals in investing, but it is widely agreed that longer time horizons are best for generating positive returns. One of the reasons for this is that the investment can have time to compound.
Morgan Housel states that, “A good summary of investing history is that stocks pay a fortune in the long-run but seek punitive damages when you try to be paid sooner.” Who would say, “No,” to being paid a fortune in the long run?
Looking more into the statistics of this idea shows that 5-, 10-, and 20-year time horizons are all commendable lengths for creating a growing investment. The following statistics are based on different investing time periods and the percentage of times U.S. stocks generated a positive return for each:
- Time horizons that last 5 years generated positive returns 80 percent of the time;
- 10-year time horizons produced positive returns 88 percent of the time; and
- 20-year time horizons showed positive returns 100 percent of the time.
- Looking at those numbers, Mr. Housel came to his conclusion: “There’s a ‘most convenient’ investing time horizon – probably something around 10 years,” he states. “That’s the period in which markets are nearly always to reward your patience. The more your time horizon compresses, the more you rely on luck and tempt ruin.”
This shows that all of the “get rich quick” schemes are not really based on fact. As we pointed out before, there are no guarantees in investing, but the past can be a good teacher and listening to experts like Housel can pay dividends. Patience cultivates success, especially when investing your hard-earned money. This is a great time to do some extended research and read our other blog posts on index investing. Investing in an index, paired with a long-term time horizon is the recipe for success.
If you or anyone you know is interested in a long-term, index-linked investment, please e-mail me at email@example.com or message me at 778-951-2806.
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