The days are long, but the years are short.
That’s what people love to tell young parents in the throes of dirty diapers, late-night feedings, and temper tantrums. On the difficult days, in that season of life, all mom and dad can see, through sleepless eyes, are messes and the next task to keep the little human alive.
This goes for the volatility of the stock market too. There are no perfect parents and there are no perfect investors, but the difference between a good investor and a bad investor will be how they handle the hard days.
According to the above chart from Barclays1, the investment return of equities—that fancy-pants term for stocks—swing wildly in short time horizons and has only gone up in the long term of 20+ years. A “newborn” to investing can be in for a ride, while an “adult” investor who has held stocks for two decades has always had a positive return.
Furthermore, Barclays research puts a twist on how an educated investor thinks about safety and risk:
Strangely, if risk is defined as the worst inflation-adjusted outcome over a certain period, Treasury bills were the riskiest asset class over a twenty-year investment horizon.2
Interest rate risks and inflation eat at the returns of “safe” investments like Treasury bills. Fisher Investments, leaning on data since the 1960s, reveals in the following chart3 that when one looks under the hood of one popular conservative investment, it doesn’t look so great after inflation.3
I’m talking about CDs.
Safety and risk can be a matter of perspective. What looks safe in the short term can be risky in the long-term.
And just like that, we are back to parenting. Parents who keep their kiddos away from risk may seem to make the right decision in the short term, but it can have long-term negative effects. Dr. Mariana Brussoni has shown that “all children need risky play” and if they don’t have “the kind of play that involves some risk...the consequences can be dire.”4
Why would a parent keep their kids away from risk? Often, it’s fear. Why would an investor stay away from risk? Often, it’s fear.
You see? Who says parenthood can’t apply to investing?!?
Days and years in the stock market can feel long, especially in a down year, but decades have brought investment success.
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