Breaking the Chains of Time

Larry SwedroeUnfortunately, we are all slaves to time, no more so than when it comes to investing, because we have little to no control over the investment lifetime we are dealt. This is evident in a recent paper titled “Stocks for The (Very) Long Run: A Tale of Two Tails.” My colleague Sheldon McFarland reviewed this study by Hugo Roccaro and Mathieu Vaissié, who conducted comprehensive research examining various aspects related to long-term investing.

Their goals were to test empirically the deep-rooted belief that stocks are the go-to assets for investors with a long investment horizon and to show why long-term investors sometimes fail to reap the full benefits of stock investing.

The authors analyzed monthly returns for investment horizons ranging from one to 40 years over the sample period 1945-2022 for the U.S. stock market as well as 49 other style, sector, and risk-controlled portfolios. They compared the U.S. stock market and the other portfolios to reference indices corresponding to a hierarchy of investors’ needs, ranging from capital or purchasing-power preservation to capital accumulation or intergenerational transmission. The reference indices consisted of five indices: the one-month U.S. T-bill (a proxy for the risk-free asset), the CPI All-Urban Consumer Index (a proxy for inflation), the 10-year U.S. government bond (a proxy for the performance of a prudent investor), the Case-Shiller Index (a proxy for the real estate market), and gold (a proxy for the ultimate store of value).