{"id":2097573,"date":"2019-01-18T15:48:28","date_gmt":"2019-01-18T10:18:28","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2097573"},"modified":"2019-01-18T15:48:28","modified_gmt":"2019-01-18T10:18:28","slug":"how-long-is-long-term","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2019\/01\/18\/how-long-is-long-term\/","title":{"rendered":"How long is long term?"},"content":{"rendered":"<p>Most new equity investors think &#8220;long term&#8221; is three years. Some think its five. This leads to expectations that are setup to fail. We wrote about <a href=\"https:\/\/stockviz.biz\/index.php\/2019\/01\/14\/projecting-future-returns\/\">projecting future returns<\/a> recently where we showed how we expect 20-year returns to be statistically distributed. In the simulations that we ran for that article, we also projected returns for 10- and 30-year horizons. We reproduce the charts below.<\/p>\n<h3>10-year S&amp;P 500 return distribution<\/h3>\n<p><a href=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.10.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.10.png\" width=\"3600\" height=\"1800\" alt=\"SP500.GLD 10-year\" class=\"alignnone size-full\" \/><\/a><\/p>\n<h3>20-year S&amp;P 500 return distribution<\/h3>\n<p><a href=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.20.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.20.png\" width=\"3600\" height=\"1800\" alt=\"SP500.GLD 20-year\" class=\"alignnone size-full\" \/><\/a><\/p>\n<h3>30-year S&amp;P 500 return distribution<\/h3>\n<p><a href=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.30.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/raw\/master\/expected%20returns\/SP500.GLD.1991-01-01.2018-12-31.30.png\" width=\"3600\" height=\"1800\" alt=\"SP500.GLD 30-year\" class=\"alignnone size-full\" \/><\/a><\/p>\n<p>As your investment horizon grows larger, the probability of you facing severe losses come down and the overall probability of positive outcomes increase.<\/p>\n<h3>Fama and French agree<\/h3>\n<p>In a recent paper, <a href=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2019\/01\/Volatility-Lessons-Fama-and-French.pdf\">Volatility Lessons<\/a> for the Financial Analysts Journal, Eugene F. Fama and Kenneth R. French pretty much arrive at the same result. Here are the charts from their paper:<br \/>\n<a href=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2019\/01\/ff-horizon.gif\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/portalvhds29z8xdrqhczq.blob.core.windows.net\/wordpress\/2019\/01\/ff-horizon.gif\" alt=\"\" width=\"789\" height=\"866\" class=\"alignnone size-full wp-image-2097593\" \/><\/a><\/p>\n<p>And they conclude:<\/p>\n<blockquote><p>The high volatility of monthly stock returns and premiums means that for the three- and five-year periods used by many professional investors to evaluate asset allocations, the probabilities that premiums are negative on a purely chance basis are substantial, and they are nontrivial even for 10- and 20-year periods.<\/p><\/blockquote>\n<p>Basically, long-term is ~30 years, anything less that is prone to be influenced by noise (luck.)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Most new equity investors think &#8220;long term&#8221; is three years. Some think its five. This leads to expectations that are setup to fail. We wrote about projecting future returns recently where we showed how we expect 20-year returns to be statistically distributed. In the simulations that we ran for that article, we also projected returns &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2097593,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[960],"class_list":["post-2097573","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2097573","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2097573"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2097573\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2097593"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2097573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2097573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2097573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}