{"id":583,"date":"2016-05-19T12:35:03","date_gmt":"2016-05-19T19:35:03","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=583"},"modified":"2016-05-19T12:35:03","modified_gmt":"2016-05-19T19:35:03","slug":"remarkable-picture-why-time-is-your-friend","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/remarkable-picture-why-time-is-your-friend\/","title":{"rendered":"Remarkable picture – why time is your friend!"},"content":{"rendered":"

Stocks are volatile – the chart below shows the return on the S&P\/TSX Composite for one year rolling periods each month from March 2016 going back to 1976. \u00a0Scary stuff right? \u00a0While there are a lot of good return years, there are a lot of months where you would have lost more than 20% of your money over the next year.<\/p>\n

\"TSX
Source: Dimensional Fund Advisors Returns 2.0, SP\/TSX data provided by TSX. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio.<\/em><\/figcaption><\/figure>\n

 <\/p>\n

Now instead of 1 year periods, what if we look at 5 year rolling periods? \u00a0All of a sudden stocks don’t look quite so risky, especially if you think of risk in terms of losing money. \u00a0As you can see below there are very few 5 year periods over which you would have lost money in the Canadian stock market starting in 1971. \u00a0Now some of those 5 year periods were negative and even more earned less than inflation but you don’t see the large\u00a0draw downs you do over shorter time periods.<\/p>\n

\"TSX
Source: Dimensional Fund Advisors Returns 2.0, SP\/TSX data provided by TSX. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio.<\/em><\/figcaption><\/figure>\n

 <\/p>\n

But many have a much longer time horizon than 5 years – young families saving for their children’s university education, professionals looking forward to retirement down the line, retirees who want to ensure their money will last\u00a0them for a long stress-free post-retirement period. \u00a0Investment time horizons are often more than 20 years. \u00a0The chart below shows rolling 20 year periods starting back in 1956 through until end of March of this year.<\/p>\n

\"TSX<\/a>
Source: Dimensional Fund Advisors Returns 2.0, SP\/TSX data provided by TSX. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio.<\/em><\/figcaption><\/figure>\n

There isn’t a single 20 year period where you would have lost money. \u00a0Now inflation was pretty high in some years, particularly in the 70’s and 80’s but you would never have had average returns below 6%, even if you started in the worst month since 1956. \u00a0 The average\u00a020 year period return\u00a0is closer to 9%. \u00a0Now past performance won’t necessarily be repeated and it’s always prudent to be conservative but people shouldn’t let media doom-sayers and short term market volatility spook them into avoiding stocks. \u00a0If your time horizon truly is short, for example if you know you need a house down-payment in 3 years, then stocks probably aren’t the best place to park your money. \u00a0But over longer time horizons, average returns are much less volatile. \u00a0If you have time on your side, and most do, use it and take advantage of\u00a0the awesome ability of the stock market to compound\u00a0your wealth\u00a0over the long run.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Stocks are volatile – the chart below shows the return on the S&P\/TSX Composite for one year rolling periods each month from March 2016 going back to 1976. \u00a0Scary stuff right? \u00a0While there are a lot of good return years, there are a lot of months where you would have lost more than 20% of […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,16,10,7,15],"tags":[],"class_list":["post-583","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-asset-allocation","category-evidence-based-approach","category-graham-bodel-posts","category-risk-and-return"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/583","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=583"}],"version-history":[{"count":2,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/583\/revisions"}],"predecessor-version":[{"id":588,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/583\/revisions\/588"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=583"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=583"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}