No one knows what the market will do today, tomorrow, next week, next month or even next year. No one.

The experts get it right about half the time, so asking them is about the same as tossing a coin.

Short term investing looks like this:

Short term investing is a random chaotic jungle. Its unpredictable and unstable. There is nothing you can do about this. Diversification does not help. Its just the way it is.

Throw your investment eye out over a (rolling) year. Or ten. Things change. Patterns emerge. Almost trends. Its not as noisy. Not as chaotic. The underlying economic relationships manifest, and performances start to regress to the mean.

Its more predictable and more stable. But not perfectly. Investing with a rolling one year time frame is still very risky.

It looks like this:


Now throw your eye over a rolling ten-year average. Relationships and trends become crystal clear. Growth assets, ie property and shares, will on average in the long run earn more than the risk free rate of return. Risk takers must be compensated, or else they will not take risks. Its basic economics and its called the capitalist system. Australia’s economy is still, despite everything, a predominately capitalist system.

The ten-year rolling average looks like this:


You can almost smell the serenity. Its calm. The chaos and instability has gone. It’s predictable. Anyone (one does not have to be an expert) can safely say that it is probable, but not certain, that a balanced portfolio will return somewhere between 4 % and 8% a year in any given ten year period.

There are no negative ten-year periods. Sure, there were plenty of negative years, and even more negative months, but as time goes by their effect is always outweighed by the positive periods. There is safety in time. Time is the investor’s, and her adviser’s, friend.

This is why clients should always have a minimum holding period of at least ten years before they invest directly or indirectly in shares or property.

If they do not have a minimum holding period of at least ten years they should not invest directly or indirectly in shares or property. The risk is too high. They should stay in the safer asset classes.

What about the last twenty years?

Over the last twenty years Australian shares and Australian property have both averaged more than 9% a year, despite many ups and downs including the Global Financial Crisis.

The Russell ASX Long Term Investment Report tells the story, and you can access it here: Russell ASX Long Term Investing Report 2015.

The risk paradox: risky is safe and safe is risky

We live in a low interest rate world, with inflation adjusted purchasing power dropping by the day, you must impress on your clients that in the long run shares and property are the safest place to be, and cash and cash based investments are the riskiest place to be. If you stay in or near cash its virtually certain you will lose your purchasing power as the decades slip by.

What you should tell your clients

You should stress the importance of a long-term view and understanding how risk works.

Education and information is the key. There is a lot of misinformation out there.

Show your clients the Morningstar graphics. Give them a PDF copy of the Russell ASX Long Term Investment Report.  Explain to them how investing really works and how time is their friend, and risk can be controlled and mitigated by taking a long term view, a ten year view, of every move they make.


The authors note the influence of the article “Long-term investing: the destination is better than the journey” by Peter Gee, a research products manager with Morningstar Australasia, published in on 10 December 2015.

You can read the original article here: Long term investing: the destination is better than the journey.