I read a really good article\u00a0from The Balance<\/a> talking about if long or short-term investments are better, and talking about all of the different aspects at play for each person, so I highly recommend checking that out, but I am here to talk about the numbers ONLY!<\/p>\n\n\n\n In full transparency, I have run all of the analysis but\nhaven\u2019t looked at any of the results, so I still think that long-term investing\nis absolutely better, but I am trying to go into this with an open mind.<\/p>\n\n\n\n One thing that I am really good at doing in my personal life\n(maybe even too good if you ask my wife), is playing devil\u2019s advocate and challenging\nthe status quo. I am really good at\ndoing this in my professional life as well but for some reason it\u2019s taking some\ntime to get there with investing. <\/p>\n\n\n\n Relistening to the interview with Tobias Carlisle<\/a> on the Investing for Beginners Podcast, I keep getting more and more motivated to challenge the status quo and really think outside the box.\u00a0 Just challenge the consensus and see how things look.\u00a0 So, this is what I am doing.<\/p>\n\n\n\n Everyone says that investing for the long-term is better,\nand they say it\u2019s like significantly better, so let\u2019s see just how much better\n(if at all) it actually is!<\/p>\n\n\n\n I took the S&P 500 for as long as I could go back in history on Yahoo Finance<\/a>, which is 1928, and then broke down comparisons for if you were to buy and hold the S&P 500 for anywhere from 1 year to 10 years, in yearly increments. Let\u2019s take a look at the results below!<\/p>\n\n\n\n\n\n\n\n Alright, let\u2019s decipher what exactly we\u2019re looking at. As you can see across the top, I broke it\ndown into the amount of years that you would hold onto the S&P 500 after\nbuying. So, if you bought on 5\/1\/1928,\nwhich is as far as my data goes back, and then sold in 1 year, that means you\nsold on 5\/1\/1929.<\/p>\n\n\n\n On average, if you were to buy 1 share of the S&P 500\nand then sell if 1 year later, 68.41% of the time you would be selling at a\nprice that was higher than you bought. \nThat percentage doesn\u2019t seem too bad, but likely not a risk that I would\nwant to take.<\/p>\n\n\n\n The worst year was a huge downturn of -70.13%…ouch! The greatest return on the other hand was a\nmonstrous return of 146.28%, meaning if you paid $100, you now have $246.28!<\/p>\n\n\n\n On average, the return that you would expect would be 7.52%, which really isn\u2019t too shabby! Using an average isn\u2019t always the best indicator to measure what the most realistic outcome actually is because it takes outliers into account, so I prefer to use the median.\u00a0 The median return is 8.94%!\u00a0 Now we\u2019re talking.<\/p>\n\n\n\n I also want to note that this doesn\u2019t include dividends, which is on average right around 2% now, so that\u2019s absolutely something to think of. If you were to DRIP those dividends<\/a> then the returns would be that much higher, but that doesn\u2019t matter nearly as much in a short-term investing strategy.<\/p>\n\n\n\n As you expand the time horizon from 1 year on down the line,\nyou can see that the returns become much, much larger, which makes sense,\nright?<\/p>\n\n\n\n A lot of the major downturns in this data were caused during\nthe Great Depression, which while we can\u2019t throw out that data, it was so long\nago that it might not seem as relevant. \nI can see it both sides:<\/p>\n\n\n\n 1 \u2013 one way is that I see it as being so long ago that if it\nhasn\u2019t happened more recently, is it really worth including in analysis?<\/p>\n\n\n\n 2 \u2013 the other way is that if you\u2019re trying to be\nconservative and invest with a margin of safety, emphasis on the safety as\nAndrew, Dave and myself all recommend that you do, then including these\ntimeframes is a good decision. Worst\ncase is you plan for the worst, but you end up with much better returns. More money? \nOh dang\u2026what a shame ?<\/p>\n\n\n\n But don\u2019t worry, regardless of your stance, I also included some other data points as well, starting on 1\/1\/1950, 1\/1\/1975 and 1\/1\/2000, all shown below:<\/p>\n\n\n\n The main takeaway that I had from adding these additional\ntimeframes is simple \u2013 the shorter the timeframe, the riskier your investment,\nwhich again, makes sense.<\/p>\n\n\n\n On average, you can expect some pretty good returns for just\na 1-year investment, but you can also experience some very, very low lows, but\nthey\u2019re not solely tied to just 1-year investment time periods.<\/p>\n\n\n\n The worst 1-year investment is down nearly 45%, which is\nbrutal, but the worst 10-year investment is down nearly 41% as well, so both\nare really, really tough. <\/p>\n\n\n\n So, where do I land in the epic battle of long vs short,\nthen?<\/p>\n\n\n\n Well, it\u2019s simple \u2013 it all completely comes down to what\nyou\u2019re investing for and your investing philosophy.<\/p>\n\n\n\n If you\u2019re investing for a down payment on a house and just\nwant to invest for 3-4 years, are you ok with losing 40% of that money? If you are, then invest! The gains could be incredible as long as\nyou\u2019re ok with the alternative. If you\ninvested $25,000 for 4 years in the \u2018Since 1950 timeframe, your bookend would\nbe either ending up with $15,268.57 or massive gains resulting in a new total\nof $68,005.19.<\/p>\n\n\n\n Is the potential to make that really big return worth the\nrisk of losing nearly $10K? If it is, do\nit. If it\u2019s not, then don\u2019t. It really comes down to that.<\/p>\n\n\n\n My synopsis for my own personal investing strategy is simple\n\u2013 there is nothing wrong with investing for the short-term as long as you\u2019re\nready to feel the burn! If you can\u2019t\nstand the heat, get out of the kitchen!<\/p>\n\n\n\n Personally, I have three different investment accounts. I have one account that is based solely on buying and holding for forever, one that is essentially the same thing but focused towards identifying future dividend aristocrats<\/a>, and then another that is more focused on short-term. Not trading by any means, but more of a hands-on approach than my other portfolios. <\/p>\n\n\n\n I do this for a few different reasons:<\/strong><\/p>\n\n\n\n Regardless of my timeframe, my strategy is the same \u2013\nfinding companies that are undervalued vs. their intrinsic value, it\u2019s just\nwhere that stock should fall in the long or short portfolio.<\/p>\n\n\n\n Short-term portfolios definitely have a place for those with\nthe appetite and mindset to handle it, but I know that not everyone is like\nthat. When I first started investing, I\nthought that I could handle it, but I couldn\u2019t. \nI made a lot of mistakes when I started and bought high and sold low,\nlocking in losses at low points and making my portfolio look like a giant pile\nof crap!<\/p>\n\n\n\n My issue was that I would sit there and look at my portfolio everyday and then sell as soon as things got bad, just to have the stock rebound the next day. I actually think that looking at your portfolio every single day is a good thing<\/a> and I am happy I made these mistakes early because I think they\u2019ve made me a better, more patient investor later in life when I have more money at risk. I would\u2019ve hated to make that mistake later in my investing life because theoretically, the later in your life, the more money is at risk, and the larger impact that those mistakes are going to cost you.<\/p>\n\n\n\n When I invest in the short-term, I almost view it as going\nto the casino. I sit there and ask\nmyself \u201cwill my life be impacted if I lose 100% of this money?\u201d If the answer is yes, avoid the short-term\ninvesting strategy AT ALL COSTS. <\/p>\n\n\n\n If you feel that way, then the long-term investing strategy is really the only strategy that you should even consider. When I was first investing, the answer to that question was a \u2018yes\u2019 and that\u2019s what made me such an irrational investor that overreacted to everything, causing me to sell low and buy high. The thing about buying high and selling low is that you can still make money, and a good chunk of money, as long as you HOLD ON!!<\/a><\/p>\n\n\n\n So, basically, I knew that if I lost that money it would\nchange my life, and I knew that I didn\u2019t have an appetite to lose it, yet I did\nit anyways \u2013 sounds pretty freaking stupid, right?<\/p>\n\n\n\n Right.<\/p>\n\n\n\n But I wouldn\u2019t change it for anything because it\u2019s made me a\nbetter short-term AND long-term investor. \nSo, in short, what side of the fence do you land on in the long vs short\ndebate?<\/p>\n\n\n\n I think that every person should always have some sort of\nlong-term investments in their portfolio for no other purpose than hedging your\nbets. I think that a long-term position\nis built for all to succeed with and a shot-term investing timeframe is more of\na supplemental approach. <\/p>\n\n\n\n![\"\"](\"https:\/\/eor7ztmv4pb.exactdn.com\/wp-content\/uploads\/2020\/05\/ISS_17050_05987-1.jpg?strip=all&lossy=1&ssl=1\")
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<\/a><\/figure><\/div>\n\n\n\nWhat’s Your Investment Philosophy?<\/strong><\/h2>\n\n\n\n
Feeling Stressed vs Stress-Free Investing<\/strong><\/h2>\n\n\n\n
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