Investors (especially those who have a few grey hairs) often say that investing is like riding a bucking bronco. The implication is that when you put your money in the market, you end up staying in one place and hanging on for dear life as the market forces send you bouncing up and down.
Personally, I think a better metaphor is to look at investing as being like a marriage. In both investments and married life, the best results happen when you make a commitment and stick to it – for better and for worse.
I’ve been involved in the investment business since 1984. Through the years, I’ve noticed that a huge amount of effort seems to be spent by all manner of analysts, economists and investment firms on trying to predict where the capital markets are going to go next.
If you read any of the print advertising around most investment products, they tend to emphasize the past exceptional performance of their particular fund, manager or style of investing. The implication being that, if you buy one of these fine products, you can enjoy those same amazing returns without enduring any risk.
The facts, however, tell a different story. The vast majority of even the most stellar fund managers typically tend to revert to about average performance over time, meaning that if you buy their fund after a great ride, the ride you experience next probably won’t end up being nearly so much fun. As for those analysts and economists? It turns out they tend to be right about half the time – or more or less the same result as if you simply closed your eyes and flipped a coin.
The truth is, if you want to reap the rewards that come from investing in an asset that carries risk, it’s virtually impossible to take all the twists and turns out of the road. The future almost always turns out to be different from what we thought it was going to be. Sometimes, in ways that are better than we expected. Sometimes, for the worse. But in my experience, the most successful investors – whether it be in real estate, stocks or any other growth asset – are the ones who make a commitment to their chosen asset class, and then see it through all the bumps and bruises to the end.
There will be bad times and there will be good times. The bad times can be worse than anything you saw coming. But the good times can be more profoundly life-changing than you ever thought possible.
Take a look at stocks, for example. There will always be someplace else that looks more appealing than equities. This is especially true when the markets are in turmoil. In the most recent crisis of 2008 and 2009, the stock market fell by more than 50%. Investors who panicked and got out of the market lost as much as half their life savings. Investors who gritted their teeth and stayed put eventually recouped all those paper “losses” – and then some.
Those investors who rode out the roller coaster had every reason to take their lumps and go chasing after something with a bit more glitter. The only thing that kept them invested during those tough days was their faith in their commitment, and perhaps a little optimism that even the worst times must eventually come to an end.
When I look at the individual investor experiences I’ve seen over the years, I see investors who put $30,000 in Enbridge stock way back when, and watched patiently as it turned into a quarter of a million dollars. Others bought even more boring stocks like the Royal Bank, and saw $20,000 turn into $200,000 by the time they were ready to retire.
These are not flavour of the month investors. These are people who bought good companies a generation ago, held onto them, and will now probably be able to leave a large portion of their holdings to the next generation. They don’t care about one-year forecasts or “track records” that go back three months. They know there will be good days and bad days. But they’ve also been through enough to understand that the good stuff is worth more than the bad. And you only get to the good stuff by sticking around.
I’m not suggesting that everyone go out and buy Enbridge or Royal Bank (although you could do a lot worse things with your money). These same results are everywhere in the stock market. In 1980, the S&P 500 Index representing the 500 largest stocks in the U.S. stood at 100. As I write this article, it’s at 1,682. That’s a pretty impressive rate of return for anyone who had the patience to simply stay committed to equities, regardless of what the pundits were screaming at them to do.
Those investors who have achieved great results over their lifetimes didn’t get those results by listening to the talking heads on the cable news networks, trading in their long-term assets every time there was a shift in earnings momentum, or owning great companies only when things looked good.
The most successful investors saw a good thing and stayed invested, for better and for worse. A reliable portfolio will work – really work – given enough time. And while the ride won’t always be easy, the rewards at the end of the journey will be well worth the wait.
Alan MacDonald, an investment advisor with Richardson GMP Limited, helps investors with over $500,000 of assets make smart decisions about money. Alan is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon.
All material has been prepared by Alan MacDonald, Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.
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