Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 138

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

The old adage ‘time in the market, not timing the market’ is frequently used in articles like this one, with good reason – it often holds true. One of the key elements of successful investing is patience, as 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 difficulties and can be counterproductive. It is easy to be fixated on the daily market movements and become distracted from long-term investment goals. It is often better to take a step back and allow investments to grow steadily over time.

Returns over different time horizons

To highlight the merits of having a long-term perspective, we assessed the historical returns after fees and tax of a ‘balanced’ superannuation strategy 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.

There are no clear patterns or sequence to the returns. In the short-term, even a well-diversified portfolio exhibits volatile and unstable returns.

Exhibit 2 illustrates the rolling one-year returns, so each bar includes 12 months of performance.

Here we observe smoother and more persistent positive returns over time, with less frequent periods of negative performance.

Exhibit 3 depicts the balanced portfolio's returns over rolling 10-year periods and each bar accounts for 10 years of performance. The benefits of long-term investing become apparent, with two important takeaways:

  • In this period, there are no periods of negative returns, which means that no matter what 10-year period an individual was invested over, the portfolio delivered positive performance. This is because the well-diversified balanced strategy recovered from any losses or periods of underperformance within each 10-year window.
  • The returns are significantly smoother and considerably less volatile compared to shorter time horizons. Investors can see past the haze of short-term market movements and focus on achieving long-term investment goals.

Peter Gee is Research Products Manager with Morningstar Australasia. Information provided is for general information only, and individuals should seek personal advice before making investment decisions. The objectives of any individual have not been considered in this article.

 

8 Comments
Phil Bamback
January 04, 2016

Well said Terry... even though nothing more needs to be said I felt this was needed :)

Terry McMaster
December 12, 2015

This article shows that there can be an inverse relationship between the number of words, very low, and both the quality and quantity of information, very high.

The graphics tell the tale beautifully.

In summary, investing in shares and property is a long term exercise and if you are not prepared or able to take a long term view, ie at least ten years, then you should not invest in shares or property.

Nothing more needs to be said.

Peter Vann
December 11, 2015

Hi Brian S

1) Another way to address your desire for more research is in

http://ccfs.net.au/cvs/content/Impact_of_Investment_Risk_onRetirement_Income.pdf

In this white paper the authors** derive sustainable retirement income estimates as a function of the aggressiveness of their asset allocation for three specific cases. These calculations account for investment (and inflation) volatility (for the technical it uses a stochastic analysis not the simple but misleading deterministic analysis) .

Whilst these are only 3 specific cases, the nature of the conclusion seen on page one applies for many general cases.

2) Sure, Peter Gee's analysis is based on history, whereas in reality we all need to undertake forward looking analysis. But forward looking analysis uses history as a guide, plus current market conditions and expectations (not in the statistical sense) of future return generating parameters. Hence Peter's work provides useful insights for that forward looking process.

Peter Vann

Peter

** Chris Condon and myself.

Brian S
December 10, 2015

There is nothing new here and for those in the superannuation accumulation phase it should be reassuring. For those of us in the pension phase with drawdowns of 5% per annum or more a "balanced" portfolio may be too agressive but there is little published material showing how our investments would perform over various time spans and with different asset allocations.

David
December 10, 2015

Why on earth would any investor be in commodity stocks, just as one example, over the last 3 years?

Jon B
December 10, 2015

The trouble is institutionalised laziness and the insistence that tracking error is more important than negative returns. Constructing actively managed, diversified portfolios from managers that hate to lose investors money makes a monstrous difference to investor performance. All the above article proves is that there are "lies, damned lies, and statistics".

Jerome Lander
December 10, 2015

Unfortunately, this is a simplistic view of markets based on looking in the rear view mirror, and with no elucidation of what the drivers of the returns have been, and how these might have changed and be different in future.
I would hate for anyone to rely upon this sort of analysis to invest their money, as depending upon the starting point they could easily have a very disappointing result.
Would you consider the following a good investment result:
Return: 5% per annum (over 10 years)
Risk: Biggest draw down 30-40%
Most people wouldn't, and nor should they! Alas, this is the sort of result they could achieve if they started today, and didn't lose their nerve in the meantime...

Gary M
December 10, 2015

“Patience” is fine if you are happy you have bought great businesses at great prices and are not worried that maybe you haven’t; and if you have great confidence that your existing investments will definitely achieve your goals when you need to them to; and if you know for sure that you won’t panic when your passive portfolio falls 50% or more. For everybody else (99% of investors) there is little reason to be patient.

 

Leave a Comment:

RELATED ARTICLES

How likely are market crashes?

Hold fire on your fund manager over short-term declines

Bigger fall, bigger bounce: small caps into and out of recessions

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.