As the saying goes, investing in real estate is all about location, location, location. Investing in a globally diversified equity stock market has a similar imperative: Patience, patience, patience.
Returns may or may not come when you want them to come, but successful investors are usually patient people. For example, when the S&P 500 had disappointing returns in the first decade (2000-2009), one would have had a less than zero return, yet that doesn’t mean it was a bad place to invest. Why? Simply put, it’s because we don’t know when the returns for asset classes will happen — but it may not offer any of the immediate gratification we’ve all come to expect in this society.
The way we put it to clients is that they are actually getting paid to wait. We have a concept called Time Arbitrage. If you’re day trading stocks, you have to be right minute by minute. If you’re investing, you have to be right, but the time is undetermined. The longer you can hold on, the more likely you are to get the returns.
It’s easier to hold on when you have a globally diversified portfolio of asset classes. In the last 10 years, diversified portfolios have performed consistently — but if you only compare yours to the most recent best performing asset class, you’re likely to be disappointed. Within one’s diversified portfolio, one will always have strong performers and disappointing performers compared to other components within a globally diversified portfolio.
If you own an array of asset classes built and designed with financial science, and you are patient, you will absolutely be in whatever asset class is doing best at any given moment. There’s no methodology in lurching from one high-performing asset class to another. As a matter of fact, people who chase recent past performance have been shown to consistently under-perform compared to a well thought-out investment strategy. Recent performance is not persistent. That is, people who chase recent returns end up with no returns.
At VIA IV , we base our investing strategies on the science of financial markets, not on pundits and gossip. If you would like to learn more about evidence-based investing, contact us.