In the long run it will be fine… right?
This hopeful thought comes to mind, especially when investments do something less. Advisers to banks and asset managers use it as a charm to reassure their clients. It’s also handy escape so as not to have to expose your butt.
I think it would be wiser to look critically at whether there is another way. Long-term confidence is understandable and good, but short-term returns are wiser and better.
The first question an investor might ask is: what do I mean by ‘long term’? Depending on age, the answer is different for everyone. Most people are 50+ before they have a pretty penny in the bank.
The average life expectancy for a Dutch man is 79.7 years, for a woman it is 83 years. Roughly speaking, an investor who needs to invest his assets after his 50th birthday has a maximum horizon of 30 years. An investor with capital that realistically needs to make a return on it has 20 to 30 years.
The wrong 20 years
The definition of long-term often seems to be different for many managers and long-term investors. They often base themselves on a study by Jeremy Siegel. In his book Stocks for the long term a simulation is shown with an opening position in 1802. The average real return (since 1802) on US stocks is 6.9% and for bonds 3.4%.
A period of more than 200 years seems statistically significant. But who has 200 years to spare and how representative is this period of current and future economic reality and society?
If you divide that period of 200 years into periods of 20 years, a completely different reality can be admired. The investor who just invested in the wrong 20-year period may have realized a very different return. In addition, significant fluctuations may occur from time to time.
The chart below shows the period 1994-2014 for the MSCI World Equity Index. An investor who had invested his capital in the late 1990s took more than 17 years (!) to recoup his loss. In addition, he had to suffer a number of drops of, among other things, 62% and 58%. The question is which investor can handle this mentally and financially.
Investors, wake up
Personally, I don’t find the pursuit of a possible average return of 6.9%, with an acceptance of 62% decline and also the chance of me coming back to square one after 17 years, not interesting at all. I’m sure that when I asked investors if they would risk their fortune on this metric, hardly anyone would be interested.
It’s strange what almost everyone does with their assets. A vulnerable strategy as far as I know.
Wake up, I would therefore say to investors who still hope that things will go well in the long term. You are way too vulnerable and why would you want to be? It really can be different and better too.
How? Together with 12 other professionals, I will explain this in a series of 13 online training courses that IEX and the Norwegian Investment Institute offer together. Click here for more information.
Learn ultimate investment
Ultimate Investing is a series of online courses where we analyze the investment approach of 13 different professionals. Top speakers include CEOs, stock traders, entrepreneurs, top investors, scientists and analysts – all explaining their fields and investment strategy.
Never before has such a well-rounded series of online courses for investors been offered in the Netherlands, and you can be a part of it. Business as tradestock trading, option strategies, venture capitalreal estate, sustainable investment, hedge fund and many other topics are covered.
As a bonus, the most successful investment strategy in the world is discussed and there are two international speakers (English speaking) who are both extremely successful. You became a millionaire through smart investments in venture capital. He is now launching a new investment opportunity in biotechnology and life sciences. The second speaker became financially independent through crypto investing.
Take action before it’s too late
This online training package is especially for investors like me does not just want to hope that things work out in the long run, but who understand that they need to act before it’s too late. If you want to start the new year off right, sign up here to join all online training courses, including the bonus sessions.
Finally, it is your wealth and if you hit the wrong period, your time will run out at some point and there will be no second chance. Hoping it works out in the long run is understandable, but it makes more sense to look for another strategy with statistically significant results. The professionals we selected present who like to present alternative strategies in the Ultimate Investing course. Will I see you there?