Jacob Fields, Chell Financial Group: Holding Equities for the Long Term: Time Vs. Timing
A short read of the power of holding stocks for the long term vs market timing.
At this year's annual Robin Hood conference, which was held virtually, the founder of the world's largest hedge fund, Ray Dalio, talked about asset bubbles and how investors could detect as well as deal with bubbles in the marketplace. Q1 2021 hedge fund letters, conferences and more Dalio believes that by studying past market cycles Read More
Holding Equities for the Long Term: Time Vs. Timing
Legendary investor Warren Buffett is famous for his long-term perspective. He has said that he likes to make investments he would be comfortable holding even if the market shut down for 10 years. Investing with an eye to the long term is particularly important with stocks. Historically, equities have typically outperformed bonds, cash, and inflation, though past performance is no guarantee of future results and those returns also have involved higher volatility.
It can be challenging to have Buffett-like patience during periods such as 2000-2002, when the stock market fell for 3 years in a row, or 2008, which was the worst year for the Standard & Poor’s 500 since the Depression era. Times like those can frazzle the nerves of any investor, even the pros. With stocks, having an investing strategy is only half the battle; the other half is being able to stick to it.
Just what is long term?
Your own definition of “long term” is most important, and will depend in part on your individual financial goals and when you want to achieve them. A 70-year-old retiree may have a shorter “long term” than a 30 year old who’s saving for retirement. Your strategy should take into account that the market will not go in one direction forever–either up or down. However, it’s instructive to look at various holding periods for equities over the years.
Historically, the shorter your holding period, the greater the chance of experiencing a loss. It’s true that the S&P 500 (INDEXSP:.INX) showed negative returns for the two 10-year periods ending in 2008 and 2009, which encompassed both the tech crash and the credit crisis. However, the last negative-return 10-year period before then ended in 1939, and each of the trailing 10-year periods since 2010 have also been positive.*
Holding Equities for the Long Term: Time Vs. Timing by Harvest