When people ask the question “is now a good time to invest?”, they’re generally looking for some definitive answer of “yes – markets are likely to go up” or “no – markets are going to drop.” They’re looking for some sort of confidence or certainty because no one likes to make decisions without it.
Unfortunately, with investing, 100% certainty is never present. Despite what media headlines lead you to believe, no one knows what markets will do in 1 month, 3 months, or even a year from now. In the short term, markets are driven by investor psychology and sentiment, which can change quickly and without warning. The good news for investors is we don’t need to know what the markets are going to do next to be successful.
It’s nice to see your new investment go up in value initially, but the fact is, how your investment performs right after you purchase it, has little to no impact on the long-term returns of that investment over the next 5 – 10 years.
A study by James Montier that was presented in his book Value Investing, looked at stock returns over long periods and found that only 10% of the total return of a stock comes from the first 3 years of owning it. The next five years are more important as they contribute 15% to the total returns experienced by the investor. However, it’s past this point that is the most crucial. Holding for 8 years and beyond is responsible for a whopping 75% of the total investment returns the investor will experience.  Case in point, what happens initially after buying an investment should not matter.
History serves as a guide for the long-term investor. Going back to 1926, if you look at rolling 5-year periods, the market was up 86% of the time. If we extend that to 10-year periods, it becomes 94%. Having a long-term mindset stacks the odds in your favour that you’ll see a positive return on your investment.
Source: Montier, James. Value Investing (p. 331). Wiley. Kindle Edition
So is it a good time to invest? If you’re a long-term investor, the answer is always yes. The odds of a positive return over the long term are in your favour, and most of your return is going to come from allowing your investment to compound 8 years and beyond.
I’ll add one caveat with the answer. Any money being invested today needs to be money you are willing to see go down in value tomorrow, a month from now or even three months from now. Really, any money invested into the stock market should be money you don’t need for at least 5 years.
- Brandt Butt, Portfolio Manager/Investment Advisor, CIM®
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Brandt is an Investment Advisor and part of an award-winning team at Endeavour Wealth Management with iA Private Wealth. Brandt’s focus is working with incorporated physicians and dentists between the ages of 35-45 who are looking to set themselves up on the right financial path in hopes of reaching a point where they are choosing to work, instead of having to.
This information has been prepared by Brandt Butt who is a Investment Advisor/Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor/Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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