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Focus on Your Finish Line

The past 15 months have given investors enough uncertainty to last a lifetime. Now, in May 2021, with nearly 38% of all Americans being fully vaccinated, inflation fears becoming tangible, equity markets shifting between euphoria and correction, and speculation running rampant, many uncertainties still remain. Let’s take a look back at the past 15 months and recap some of the events we’ve all experienced:

  • Continuation of the longest bull market in U.S. history
  • Spread of COVID
  • Yield curve inversion
  • Rush to produce COVID tests
  • Mask mandates
  • Shutdowns
  • Negative oil prices
  • Market sell-off
  • W, V, L, Nike swoosh–shaped recovery speculations
  • Market rebound
  • Race to develop COVID vaccines
  • Presidential election
  • Impeachment of the President (twice)
  • Civil unrest and protests
  • Senate runoff election with Senate control in the balance
  • Cryptocurrency bull market
  • GameStop, meme stocks, tendies, and something called diamond hands
  • Cryptocurrency sell-off (twice)
  • (Another) market sell-off
  • (Another) market rebound
  • SPAC boom
  • SPAC sell-off
  • COVID vaccine distributions

Out of respect for our reader’s time, we’ll end the list here, knowing full well this doesn’t begin to cover other significant social and economic events. 

The bottom line is this: these 15 months have been an unprecedented period of uncertainty, speculation, and stress for many. There have been many perceived reasons to sell, buy, or change your investments. It’s with this background we argue that keeping a long-term perspective and remaining focused on your finish line is as important as ever.  For most, this is retirement – and for most, this is years away. That time gives you an advantage. 

If you were disciplined enough to hold onto your investments through the noise, even in a traditional 60/40 balanced portfolio, you’ve earned in the neighborhood of 22%* over the course of these 15 months. If you held the S&P 500 over that time period, you earned roughly 33%** on your money. 

For those that have tried to chase higher returns through trendier stock picks, you’ve likely either been burned in recent weeks or – through impeccable timing - made out with handsome gains. If the latter is true, more power to you – but precise market timing rarely is a consistent strategy. For the rest, it may be beneficial to look at how powerful having a longer-term focus is and how dangerous speculative trading can be. 

The below chart shows how a longer holding period increases your chances of experiencing positive returns. Let’s look at the S&P 500. Trying to trade on day-to-day movements, your chance of earning a positive return is barely greater than a coin-flip’s chance. However, over a 10-year period, you’ve historically had a 90% chance of earning a positive return. That is powerful. 

Source: Richard Bernstein Advisors LLC

This second chart (below) is meant to give a perspective on markets. Notice how small the COVID market sell-off is in the grand scheme of market returns. Pick a spot on this chart and move forward 20-40 years (a typical investor’s retirement time horizon). Without fail, the market is up. 

Source: JPMorgan

It can be tempting to chase returns and try to capitalize on the newest and flashiest investments. The simple fact is buying and holding investments for 30 years is neither exciting nor entertaining like speculating is. You don’t get the “winning” feeling watching your balanced portfolio inch up 4%-5% per year like you do buying a hot stock that you can tell your friends about, hoping to see outsized returns. History suggests, however, being able to cancel out short-term noise, sticking to your investment plan, avoiding speculation, and being diversified is a more successful wealth-building strategy than speculating on a few investments that have a binary payoff with the outcomes striking it rich or start back at square one. With troves of uncertainty still brewing in markets, remember to keep your focus on your finish line and align your goals accordingly. 

*VBAIX – Vanguard Balanced Fund used as a proxy for 60/40 returns

**IVV – S&p 500 ETF used as a proxy for S&P 500 returns