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Invest For The Decade, Not The Year

The decade closed with equities appreciating 257% and advancing in eight of 10 years in the 2010’s. But have the markets become so overvalued that the coming decade will bring low or even negative returns?

COMPOUND UNANNUALIZED EQUITY RETURNS BY DECADE (1930 - 2019)

Performance by Decade

Source: Fama and French Three Factor Market Return Series

For some historical perspective on the subject, we look at the past nine decades. Remarkably, the 2010’s represent the most average decade of any over the 90-years. Investors tripled their money (204% unannualized return) and experienced 7.5 positive return years in an average decade for the period.

Decade returns range from a low of -4% to a high of 439%. Negative returns are rare, with only two negative return decades. The Depression-era 1930s and the 2000s with Tech Bubble deflation and the Financial Crisis combined in one ten-year period. After the market declined in the 1930’s, it took another six decades to experience another negative decade. The 2010’s was the fourth best investment return decade following the post-war era 50’s, the Dotcom 90’s, and the Reagan-era 80’s. So, while the 2000’s still may be fresh in some investors’ minds, it took a 1 in 50-year and a 1 in 75-year market decline in the same decade to turn the return negative for the decade.

For most investors, there is little need to try to predict the future based on the constant flow of information and opinion regarding the current investing landscape. Successful investors have a long-term perspective and dedicate a portion of their assets to growth and invest based on long-term return expectations. When this perspective is taken, the largely random and unpredictable stream of yearly events, headlines and subsequent results lose their significance. While there are always plenty of things to worry about, often the best course of action is to stay invested and stick to your plan.

From the Behavioral Viewpoint

What is going on?

  1. Calendar years, annual statements and income tax filing drive investors to anchor on one-year returns.

  2. Media availability and information bias flood investors with an overload of new year information and opinion that stimulates our emotional need to take some action.

  3. Patterns, stories and shortcuts help us understand what is going on around us. This Narrative Fallacy creates a natural overemphasis on narrative over data that often results in faulty analysis and poor investment decisions.

  4. We are easily Fooled by Randomness and have a hard time accepting randomness. We want to believe that there is some way to forecast and navigate the largely unpredictable market gyrations.

What can we do?

  1. Reframe your investment time horizon, think and plan in terms of decades rather than years. Give resources allocated to growth the time necessary to mature.

  2. Use needs-based planning to separate short and long-term investments and to insulate your emotions from short-term noise. Follow a well-developed investment process that delivers critical discipline.

  3. Work with an experienced behavioral financial advisor. They can provide valuable perspective and coaching to help stay on track and remain focused on long-term goals.

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IMPORTANT INFORMATION AND DISCLOSURES

The information provided here is for general informational purposes only and should not be considered an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  It should not be assumed that recommendations of AthenaInvest made herein or in the future will be profitable or will equal the past performance records of any AthenaInvest investment strategy or product.  There can be no assurance that future recommendations will achieve comparable results.  The author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.  AthenaInvest disclaims any responsibility to update such views.  These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any AthenaInvest.

You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives and financial circumstances.  You should consult with a qualified financial adviser, legal or tax professional regarding your specific situation.  Investments involve risk and unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

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