Patience Pays

For investors, there is always something to worry about but history shows the huge benefit of long-term investing. For over 140 years, our Australian stock market made positive returns 80% of the time. Over that time the average growth rate has been 8-9% p.a., including 4.5% dividend and despite some negative years.

Source: Cufflinks

140 years of record shows that on average you’d typically double your money over a rolling 7 years. There was no rolling 8 years where you’d have lost money… as long as you remained patient. The same kind of experience occurs in established stock markets throughout the developed world.

Of course, no one feels good about investing if they sense an imminent market crash but too much anxiety can erode your returns. No one can reliably predict the future. Investors often lose more by anticipating a correction than in the correction itself. Or worse, taking action once it’s too late and then sitting in cash awaiting the confidence to buy-back in and missing the best recovery days. While perhaps extreme, the chart below helps to explain the typical investor sentiment and behaviour.

Source: Value Walk

Of course, if you were clever enough to pick the worst days on the market, you’d be better off. There’s no arguing with that. But if you can’t pick it and you get it wrong and miss out on the best days, you’d likely do much worse than if you’d just stayed the course…

Patience pays.

I have no time for patience!

But what if you’ve just retired? You have no time for patience. You need to draw down on your retirement saving now!

It does matter whether you experience strong returns or negative ones early in your retirement, right? This is called ‘sequencing risk’ – it’s how the sequence of your investment returns can amplify the effect of your withdrawals (e.g. for income). Negative returns from a market crash just after you retire means withdrawing income damages your capital more than normal returns would. It greatly diminishes your chance of catching up in subsequent years.

That’s all true, assuming you’re selling your growth assets to fund your retirement income during these negative years. And that is the case for funds like Industry Funds where your pension income is funded by selling down units in your ‘balanced’ or ‘growth’ investment pool. Each unit you’re selling has some exposure to cash, fixed interest, shares and property.

However, you can minimise this sequencing risk by taking control of your investments and implementing an asset allocation strategy designed to ride out the market dips. We call it the Three-tier approach to Retirement.

Essentially, this ‘three-tier approach’ seeks to allocate at least 4 to 5 years of your income needs to capital stable, income-producing investments such as cash, Term Deposits and Fixed Interest. The rest of your investment capital can be invested in long-term capital growth investments. When markets are experiencing dips, corrections or crashes, you can fund your retirement income by drawing down on the capital stable (cash & deposits) investments, allowing the growth assets to remain untouched long enough to recover back to trend.

But regardless of sequencing risk, there are some tried and true investment rules that usually apply. We wrote about these in our blog of July 25th last year; Old Investment Rules for a New World.


Whatever you may worry about, it has happened before – albeit in a slight varied way.

It is very difficult to reliably predict the future – and trying to do so is likely to cause more damage than good. Over the long-term, equity markets deliver strong reliable returns and patience pays off. Taking control of your investments with advice to implement a strategy that enables you to exercise patience is critical.

We believe in a higher standard of financial advice, free from product bias and conflicts of interest.


Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.