The data that shows a case for long-term investing

After the recent declines, you would be forgiven for considering stock market investing an intimidating prospect.

And to some extent you would be justified. After all, in the short run, the stock market is indeed prone to violent swings – in both directions. But the longer you invest for, the narrower the range of outcomes becomes and the lower the risk of losing money.

For example, using over 158 years of data on the Australian stock market index, the Australian All-Ordinaries Accumulation Index, we found that, if you invested for a month, you would have lost money roughly 36% of the time in inflation-adjusted terms i.e. in 690 of the 1,906 months in our analysis.

However, if you had invested for longer, the odds would shift dramatically in your favour. On a 12-month basis, you would have lost money about 24% of the time. Importantly, 12-months is still the short run when it comes to the stock market.

On a five-year horizon, that figure falls to 10%. At 10 years it is below 3%. At 15 years it is negligible – of the 1,727 rolling 15-year periods between January 1862 and December 2020, there was only  one instance where stocks lost money in inflation-adjusted terms (July 1968- June 1983, when the real return was -0.2% a year).

Percentage of the time where investors would have lost in inflation-adjusted terms

Source: Schroders, 2021.

Losing money over the long run can never be ruled out entirely and would clearly be very painful if it happened to you. However, it is also a very rare occurrence.

The message is simple. Short-term punts on the stock market are very risky. Long term investments, not so much

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This material has been issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders) for information purposes only. It is intended solely for professional investors and financial advisers and is not suitable for distribution to retail clients. The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds. The information contained is general information only and does not take into account your objectives, financial situation or needs. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this material. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this material or any other person. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to securities, sectors, regions and/or countries are for illustrative purposes only. You should note that past performance is not a reliable indicator of future performance. Schroders may record and monitor telephone calls for security, training and compliance purposes.