A LESSON TO THE INVESTOR
By James Kelly
27 November 2018
I’m not sure about you, but have you noticed how every new financial year like clockwork, companies and fund managers are releasing their statistics and returns for the last financial year. Those that have done well are crowing the loudest, but we’re not seeing or hearing quite so much from the others. The strange thing is every year it seems to be a different set of funds providing these highest returns.
Recent analysis by Vanguard has shown that over the last 30 years, Australian shares have returned on average 9.1% per year and shares in the US has seen a 10.6% return (both before fees and taxes). The key point here is ‘on average’ as we all know there have been some terrible years where prices have drastically dropped and other years where returns have been in the high teens. This great long-term performance coupled with short term swings brings to mind a few great quotes. These can’t be attributed to a single person but provide timeless lessons to investors.
"With all due respect to the media, they have to file articles every day”
Especially relevant to financial news. Don’t pay too much attention to the daily reports on market movements. Yes the market goes up some days and down on others, plus companies sometimes have bad news. Over the long term the Australian and US stock markets have delivered strong returns to shareholders, regardless of what is reported in the paper.
"It's time in the market, not timing the market"
It’s a dangerous game to try and sell a stock when you think the price is at a high and buy when you think it’s reached a low. History has shown that you can’t consistently time these transactions and any gains are eroded by fees. The quote simply means it’s more important to invest small amounts regularly regardless of what the market is doing, rather than trying to pick the best time to transact.
“People overestimate what they can achieve in 12 months but underestimate what they can achieve in five years”
People often invest and become disheartened when they don’t see a great return in the first year. Sometimes this is so strong they pull their money out and chase the fund that’s just reported the best results, hoping beyond all hope they’ll do it again. Once again, the best returns come from small amounts invested consistently over time.
These three quotes illustrate the benefits of investing for the long term and some of the reasons why people don’t always follow this advice. There is a lot of information available for investors but often this amounts to noise and is just a distraction. Take a step back and look at the long term.
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek financial advice prior to acting on this information.