How Patience and Discipline Pay off in the Long Term.
With the latest share market decline in January 2022, investors in Australia and around the world have been concerned about market volatility, rising interest rates and inflation.
Over January, the US share market fell more than 5% while the Australian market fell more than 6%. While this can seem alarming for share market investors, remember that this is only the short-term story.
Despite short-term share market volatility and fluctuations, historical evidence shows us that patient investors will be rewarded over the long term.
According to Vanguard, a global leader in investment management, when you analyse the last decade of investment markets, share markets have outperformed all other investment sectors.
A long-term view: How have different investment asset classes performed over the last decade?
From the start of 2012 to 2021 (10-year timeframe), investors with a broad share market exposure who reinvested all dividends back into the share market would have achieved significantly strong returns.
| Investment Market | Initial Investment | Average Annual Return | Investment Return After 10 years | Growth Rate |
|---|---|---|---|---|
| U.S. Shares | $10,000 | 20.6% | $66,000 | 552% |
| International Shares | $10,000 | 16.8% | $47,000 | 370% |
| Australian Shares | $10,000 | 11% | $28,000 | 180% |
| Listed Property Sector | $10,000 | 13.8% | $37,000 | 266% |
The big investment takeaway here is that a long-term perspective is incredibly important when it comes to your investment strategy. Short-term volatility on markets has little (if any) bearing on long-term investment returns.
It’s only when you take a long-term view of the performance of share markets that you get to see the bigger investment picture.
While market fluctuations will always be a natural part of the investment market, it’s important to remember they are normal but also to understand how to protect your investment from unnecessary losses in volatile times.
The best way to counteract market volatility and achieve more consistent returns is to diversify.
You will more likely see strong results with your investments if you:
- Reinvest investment distributions such as dividends, and;
- Make additional contributions over a long period of time
Even a low initial investment will grow substantially over time due to compounding effects.
Investors who stay the course, and have patience and discipline with their long-term investment strategy, tend to be more successful with their investments in the long run.
At Cambio Group, one of the most important things we can educate our clients on is:
- to not be distracted by short-termism,
- to avoid exaggerated media noise relating to investments and market movements, and;
- to avoid listening to well-meaning friends about what they should be doing with assets in the short term and instead, seek professional advice that aligns with your values and goals.
If you have any questions or would like some investment advice, please reach out to our team at Cambio Group. We are more than happy to help.
Disclaimer: The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.
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