If Your Portfolio Is Down, Just Wait Longer

Written by The Dividend Guy on May 5, 2008

Postive Return Probability

“If I am not back in 5 minutes….just wait longer” - Jim Carrey, Ace Ventura. If you have seen this movie as many times as I have then you can picture Ace Ventura saying this. The quote immediately came to mind as I was searching around the web for some probability statistics on earning a positive return in the stock market. I should have known that what I would find was work done by William Bernstein given his intense analytical and mathematical abilities. Have a look at the chart below and the message is very clear.

Investing Positive Return ProbabilityClick to Enlarge

The whole document is available here, but I will try to sum it up. It is pretty clear - the longer you hold onto your investments, the better probability you have of earning a positive return. In fact, you only have to wait 10 years to achieve a 99.9% probability of showing positive returns. If you have 100 years (who doesn’t), you can achieve a 100% probability. Bernstein really says it best:

The key, then, to a successful investing career is not just buy and hold, but buy and forget, something not easily done in our information-saturated society.

However, it is not as simple as buying a bunch of stocks and letting them ride. You need to ensure you hold an optimal asset allocation and invest appropriately according to that asset allocation’s targets. A long-term outlook continues to remain a cornerstone of a successful investing career. Do you have the patience?


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1 Comment so far

  1. Dividends4Life May 8, 2008 6:55 pm

    > In fact, you only have to wait 10 years to achieve a
    > 99.9% probability of showing positive returns.

    Excellent point in today’s environment!

    Best Wishes,
    D4L

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