I remember presenting to an investors’ association and talking about long-term investing. It was a fun group, mostly retirees. One guy quipped: “What’s long term? We’re so old we don’t even buy green bananas any more.”
Well, that certainly put a perspective on it. We all have different views of what’s long term.
Why does your timeframe matter?
It matters in investing a lot, because it has a huge impact on how much investment risk, or volatility, you can take. The longer your time horizon the better you’re able to accept some short term swings in market values.
The share market, for instance, is famous for its volatility. Over time, shares have paid off very well for investors, much better than more conservative investments like cash and bonds. (Over 30 years through June 30 last year, Australian shares returned 9.9% per annum, Australian bonds 5.8% and Australian cash 4.2%.) Differences in returns might look small but when you compound your return over many years, it makes a huge difference. For example, $100,000 invested at 5% over 20 years grows to $265,000, to $321,000 at 6% and $673,000 at a growth rate of 10%.
In 2024 taking risks certainly paid off for investors as the Australian share market has earned over 10% and international markets much higher returns of about 27% aided by the effects of a weak Aussie dollar.
