Snapshot

Monthly viewpoint

The data that shows a case for long-term investing


Duncan Lamont, CFA

Duncan Lamont, CFA

Head of Research and Analytics

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 148 years of data on the US stock market index, the S&P 500, we found that, if you invested for a month, you would have lost money roughly 40% of the time in inflation-adjusted terms i.e. in 704 of the 1,790 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 slightly more than 30% of the time. Importantly, 12-months is still the short-run when it comes to the stock market. You’ve got to be in it for longer.

On a five-year horizon, that figure falls to 20%. At 10 years it is approaching 10%. At 20 years it is negligible – of the 1,551 rolling 20-year periods between January 1871 and March 2020, there was only one where stocks lost money in inflation-adjusted terms (July 1901- June 1921, when the real return was -0.2% a year).

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.

Long-term-investing.jpg

Past performance is not a guide to the future and may not be repeated.

 

For Accredited Investors Only. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument and is not intended to provide and should not be relied upon for accounting, legal or tax advice, or investment recommendations.

The information in this market outlook is derived from sources which we consider to be reliable. However, it may not in all cases be verified independently and we do not attest to its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Forecasts may be the consensus of extremely divergent possibilities and the full range of potential outcomes should be appreciated. No representation or warranty is made that any value (or proximity to) any value, return or forecast will be achieved. The opinions expressed are those of employees of Schroder & Co. (Asia) Limited, and reflect their judgement at this date and are subject to change. Reliance should not be placed on the views and information in this market outlook when taking individual investment and/or strategic decisions. 

No part of this document may be reproduced in any manner without the prior written permission of Schroder & Co. (Asia) Limited.

Contact Schroders Wealth Management

To discuss your wealth management requirements, or to find out more about our services, please contact:

Jasper Lai

Jasper Lai

Head of Client Advisory