How Long Is Long Term?
The benefits of adding several decades to your investment horizon.
Looking back has been in vogue recently. With the new year bringing a new decade, the turn of the calendar has sparked a flood of recollection. You can easily find discussions of the best movies of the decade, the top mutual fund managers of the decade, and much more. Meanwhile, some observers have gone in the other direction, offering predictions for the 2010s.
Whatever the value of finding out--as one example--which songs a particular blogger considers memorable, for investors this trend has a positive side. For at least a brief time, public attention has been drawn away from the next day's inventory report and next quarter's earnings and refocused on a meaningful period of time.
It may be heretical, therefore, to note that in an investment sense, 10 years is not an eternity. Yes, as an alternative to the all-too-common focus on one-year returns or other short stretches, a 10-year measure provides welcome perspective. It's apt to cover more than one market cycle and a variety of macroeconomic environments. We here at Morningstar often cite that period for such reasons. But for an individual investor, there are benefits to thinking far beyond a mere decade. How about 30 or 40 years?