Why Time Matters
Time is money.
--Benjamin Franklin
Sometimes the simplest ideas are the best. When it comes to investing, the best idea we can think of is giving your money sufficient time to reward you. We can gain understanding of this concept, when we review the past to see what patterns emerge. Pictured below is a bar chart that shows the best and worst returns of the S&P/TSX for the past 75 years ending in 2018
Here's what we believe are important takeaways:
- The longer the holding period the better the result.
- Historically, any rolling holding period over 10 years resulted in a positive return.
- 1-5 year holding periods can be very volatile.
When we segment the statistics further, we can come up with some past probabilities to guide us.
Source: FreshPlan
We have experienced a 62% likelihood of making money by investing in the S&P/TSX on any month in the time period above. This increases to 75% over any one-year period, and 98% over any rolling five- year period. This is precisely why we always say that you shouldn’t invest in the Market unless you can commit to a five-year time frame. The reason is born-out in the analysis above.
While history does not repeat, it does coincide with our expectations, and the collective psychology of the investing public. If it did not, computers would have arbitraged-away all returns by now. So our advice to you, is to be a long-timer and put the odds in favour of a positive investment experience.
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Patrick A. Choquette, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.
