Transcript

Hi, This is Viram from Vested and today we are going to be showcasing some interesting data around the power of long-term investing.

As Warren Buffett said if you aren’t thinking about owning a stock for 10 years don’t even be thinking about owning it for 10 minutes.

To demonstrate the power of long-term investing, let’s look at a couple of scenarios. Pick a date from the last 40 years and imagine that you invested a sum of money on that date. Then you went ahead and sold that investment exactly four years later. What are the chances that you would earn a positive return on that investment?

Well, to be able to answer that is not that straightforward, you need to do some analysis. The analysis involves picking every possible date over the last 40 years considering that you invest money and then sell that investment four years later. Now plot the distribution of returns that you get from this exercise to understand how often you get a positive return.

If you go ahead and run this entire scenario you will see that 85 percent of the time if you hold your investment for four years you end up with a positive return and the rest 15 of the times your investment gives you a loss.
Now it gets very interesting as you increase the time period of holding your investment. Now let’s say you held your investment for a period of five years. In holding your investment for just one more additional year the chances of a negative return drop from 15 percent to 10. If you further increase the holding period to 12 years the chances of making a loss reduce to 1 percent. And if you hold it for 15 years they become nearly 0 percent.

Of course, this analysis does not guarantee that every 15 years you will not make a loss in your investments. But what we are trying to say is that you significantly reduce the chances of losing money the longer you hold your investment.

Even though the benefits of long-term investing are very clear, a lot of people fall prey to daily news or daily profit and loss investing. And thus make a lot of erratic short-term decisions. Speculative trading can definitely feel like a way to make quick money but it’s also a way to make quick losses.

By investing with a long-term outlook, we are better able to withstand the harmful effects of volatility, market downturns and recession and more often than not generate positive outcomes for our portfolios.

So that was it on long-term investing.

Stay tuned for more.

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Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.

This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.

This video is meant to be informative and not to be taken as an investment advice and may contain certain “forward-looking statements” which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated”, “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success of or lack of success of particular investments (and may include such words as “crash” or “collapse”.) All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.