Predictability In An Unpredictable World
The Best & Worst Returns,
a Matter of Time
When it comes to investing, it is useful to expect returns as a range of possible future outcomes. By accounting for these various possibilities, you will be able to construct a robust and resilient investment plan that can weather all market cycles while having sufficient buffer for bad/worst-case scenarios.
The table and graph below shows the variation or volatility of returns in a representative GYC client portfolio over the various holding periods.
Longer Horizon = More Predictability
The data shows us two things:
The longer your investment horizon, the lower the risk and volatility you take on. This continues until eventually, the chance of negative returns goes down to 0%.
The variation and volatility of returns lessens as you increase your investment time horizon. Where your short term returns over 1 and 5 years show very wide disparities, these converge close to the average rate of return as your time horizon stretches to 25 years and beyond.
As such, it is common advice that one should invest for the “long-term”. However, exactly how long is ‘long-term’? The data above now gives you a good idea of how long and the corresponding benefits.
If you have not done your planning based on a range of returns, stress-tested your investment portfolio, and or would like to look into making your financial plan as robust as possible, then it is a good idea to take another look at your assumptions and possibly update your financial and investment plans as you head into this new year.
In the same way that you would not attempt a high risk activity such as sky-diving without professional supervision, investors can benefit greatly by relying on an adviser — having the peace of mind knowing that their plan is in the hands of a professional.
You may find yourself asking questions like:
How do I account for range of returns in my planning?
What kind of returns (and losses) should I expect from my investments?
How do I build a portfolio that produces a reliable income?
Are dividend stocks or REITS the only way to create retirement income?
Receive a complimentary second opinion on your financial plan, or just have your burning questions answered by clicking here to schedule a chat with us.