Why Investors Need a Long-Time Horizon

Returns from stocks can vary greatly from year to year, and as in the case of 2018, month to month during the year. Over short periods of time (monthly, quarterly, yearly) the returns from stocks can range from up 53% to down 37%. It is because of this range of outcomes that we have to focus on what your risk tolerance is when constructing a portfolio. By focusing on controlling the amount of risk in your portfolio, we can stay invested during turbulent times and reap the rewards by participating in the growth of the economy and the businesses that drive stock returns. The chart below illustrates this point:

U.S. Stock Market Returns Annualized over 1/5/10/20 Year Rolling Returns

Source: The measure of a plan

Over any one year period the returns from stocks are wide ranging, but over a 20 year period the results are much smoother and show positive returns. The components that make up stock returns, inflation, population growth and therefore increased earnings, lead to higher stock prices over time. In the short-term, stock prices are subject to much more noise from economic and political events, that get smoothed out over the longer term.

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