When it comes to investing, time matters. While headlines and short-term perspectives can lead investors to try to time the market, investors have historically been rewarded by playing the long game. Rather than overreacting to market noise, investing over longer time periods can help smooth the ride without sacrificing returns. The lesson: stay diversified and invested for the long term.
Investors have had plenty to worry about: from elevated interest rates and higher gas and food prices to growing skepticism about the return on AI investment and now the changes in the makeup of Congress. While these short-term headlines may persist, it is important to remember that it’s fundamentals—such as earnings—that drive the market over the long term. With resilient economic activity and expectations for continued earnings growth, our forward outlook remains constructive.
That said, investors should not let short-term noise drive moves in and out of the market, as this can lead to underperformance. Investors with short holding periods may experience greater volatility of returns, while those who invest over the long term have historically earned similar returns but with less volatility.
For example, going back to 1975, the average one-year return on a portfolio composed of 60% equities and 40% bonds (represented by the S&P 500 and the U.S. Aggregate, respectively), rebalanced monthly, was 8.7% with volatility of 10.3%. Over longer periods, however, the volatility of returns narrows. Over three years, volatility is roughly cut in half, and it declines even further over a 10-year period.
In other words, while short-term headlines may tempt investors to time the market, longer holding periods have historically produced similar returns with less ups and downs. For investors looking to build wealth, the better course is to play the long game by remaining disciplined, diversified and invested.
