A lot of investors say they’re long-term investors, and a lot of advisors (including me) say we should focus on the long-term. But I haven’t found any type of consensus on what determines “long” in that phrase.
The IRS would say a long-term gain is an investment held longer than 12 months.
A long-term job position is considered to last beyond 6 weeks.
Long-term disability kicks in around 26 weeks on average.
The year 2020 felt like a long-term-12 months for a lot of people. And factually, a lot of stuff happened in those 12 months that made it feel that way. I found this infographic below a concise way of viewing it.
What’s really fascinating to me is that we saw a full market cycle happen within a calendar year. By that I mean from one all time market high, to a bear market decline of 20% or greater, and then a climb back to new all time highs. Generally this market cycle takes years to complete - not months.
And when I think long-term, I think of how long it takes for a market to complete a cycle through itself.
In fact, looking back on the worst 10 declines in the total US stock market since 1972, the average decline was -26.9%, the average length of time the market was moving down was 9.9 months, the average time it took to recover to the previous high was 14.6 months, and the average total “underwater” time period was 24.5 months.
For comparison - in 2020 (which ranked #5 as the worst drawdown since 1972), the total market went down 20.9%, the time it moved down was about 3 months, it took 4 months for the recovery, meaning a total of 7 months being underwater
Metrics of 2020 vs averages:
Decline: -20.9% vs -26.9%
Time of declining: 3 months vs 9.9 months
Recovery to previous high: 4 months vs 14.6 months
Total underwater time: 7 months vs 24.5 months
(See data I used here.)
No wonder that year felt so long.
So what’s long-term?
It depends on what you’re asking for. But for investing I would define long term at the very least 3 years - which would be longer than the total “underwater” average - and maybe as long as 6 years - the longest time period since 1972 that a portfolio was underwater, from September 2000 - April 2006.
The more traditional answer is anything longer than 10 years - and that’s probably a safer bet to allow more time for a market to complete its cycle, but it’s also potentially outside the range of what we looked at above.
Zooming even farther out, I appreciated these recent slides from JP Morgan’s Guide to the Markets that show the S&P 500 index composite over various really long term time frames. Note- these slides are showing the S&P 500, which isn’t representative of the entire US stock market, usually only the largest companies, and is slightly different than the total US stock market I referenced above.
"The hardest thing about investing prudently is that you eliminate your chances of getting rich the lucky way."
It's OK To Build Wealth Slowly
4 min read | A Wealth of Common Sense
This was so good that I wish I could have written the same message. In a time when Bitcoin is minting new millionaires seemingly every day (pun intended all week), you'd hardly be human if you didn't have some element of FOMO and questioning a diversified approach to building wealth. I especially appreciated these words about building wealth slowly:
There are some downsides to this path.
I don’t get to brag on social media about how much money I made on a high-flying stock or business venture.
I don’t get to become rich overnight.
I don’t get to become a guru who preaches the easy steps you can follow to become wealthy.
Brent Beshore's Twitter Thread on Christianity
4 min read | Brent Beshore
I made the arguably foolish decision to rejoin Twitter a few weeks back (that timing was ... well, yeah.) One of the highlights of that decision was catching this older thread from Brent Beshore on his experience as an atheist who was attracted to the love he saw in some Christians. It was a fantastic reminder to me of the Story we find ourselves all within.