When we refer to investing, what does it mean to say "over time"?

S.F. Ehrlich Associates |

People who trade the stock market frequently aren’t concerned about performance over time. They’re concerned with performance each week, day, or even hour. However, when you’re a long-term investor, reference is often made to how the market performs ‘over time.’ Long-term investing, by definition, implies a longer duration.

Even long-term investors understand that stock markets are volatile. It’s common, for example, for markets to have intra-year losses but still end the year with a positive return.

The chart below1 shows market volatility in one, five, 10 and 20-year rolling periods. As you can see, how the market may perform over longer periods of time is easier to predict than how the market may perform over the next 12 months.

Over the time periods reviewed in the chart, investors experienced annualized returns in the stock market from +47% to -39%. Over a three-year period, the range falls from +28% to -3%, +19% to -1% over any 10-year period, and +6% to +17% over any 20-year time frame. 

If you plug in the bond market, a 50% equities and 50% fixed income portfolio has significantly less volatility over any of the above-cited time frames, but volatility nonetheless.

Thus, we almost always discount short-term volatility when discussing returns over time. Admittedly, it’s not always easy, but focusing on longer time frames makes the journey less stressful.



1 “Time, diversification and the volatility of returns.” Slide 65, Guide to the Markets, J.P. Morgan.  October 31, 2023.


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