Snapshot

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 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.

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

 

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

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