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Long-term investing: The destination is better than the journey

Peter Gee  |  09 Dec 2015Text size  Decrease  Increase  |  

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Peter Gee is a research products manager at Morningstar.


The old adage "time in the market, not timing the market" is often used in discussion papers like this one, but with good reason--it often holds true.

One of the key elements to successful investing is patience. It is important to remember that a long-term mindset is required to achieve investment goals.

Returns in the short term can be unpredictable and volatile, so investing with a short-term focus produces many difficulties and can be counterproductive.

It is easy to be fixated on the daily market movements and become distracted from long-term investment goals. More often than not it is better to take a step back and allow investments to grow steadily over time.

To highlight the merits of having a long-term perspective, we will take a closer look at the behaviour of short-term performance relative to long-term performance. More specifically, we will assess the historical returns after fees and tax of a "balanced" superannuation strategy.

We examine the returns over three distinct time intervals: rolling one-month; rolling one-year; and rolling 10-years.

Exhibit 1 shows the rolling one-month returns or the portfolio's individual month-to-month performance. The green bars above the x-axis represent positive performance and a gain in the portfolio's value. A red bar below the x-axis represents negative performance and a loss in the portfolio's value.


Exhibit 1: Rolling One-Month Returns (September 1995 – August 2015) of a Balanced Superannuation Portfolio


Source: Morningstar Direct