One of the underappreciated aspects of active management is the ability to build a well-curated portfolio of mutual funds that pursue unique investment strategies. The chart below shows the aggregate performance of ten active US equity strategies over the last thirty-eight years. Allocating to the top strategies and avoiding the bottom strategies can dramatically improve long-term performance.

It’s only natural for someone invested in a poorly performing active equity mutual fund to wonder if it’s time to make a change. Should an investor sell a fund if it trails its benchmark for a year? Three years? Five years?

Even though we all know market fluctuations are a normal part of equity investing, large market declines can be scary because they often happen rapidly and feel random.

Investment time horizon is a critical concept in building wealth. Most investors have very long investment time horizons, typically decades or more. Investment managers also require long time horizons to deliver on their investment thesis.