Time is your edge

The shorter your horizon, the more investing looks like gambling. The longer it is, the more it looks like a business.

How to read the chart

For every possible start month since 1993, we measured the return per year over the next 1, 3, 5, 10, 15 and 20 years:

• Over 1 year, the result ranged from a loss of more than 40% to a gain of more than 50%. Pure noise.
• Over 10 years, the range narrows sharply — though the worst decade, starting in 2000, still lost a little over 3% a year.
• Over 15 and 20 years, every single period made money — the worst still gained around 4% a year.

The typical outcome stays around 8–14% a year whatever the horizon. What changes is the range around it.

What this means

• Money you need within a few years does not belong in stocks.
• Long-term money can afford volatility — if you can actually hold through it.
• Judge a strategy over years, not months. Every strategy has bad years; a few months tell you nothing.

Related: realistic returns

By Dr. Harry Hamann · 4 min read