Good things come to those who wait should be the catch cry of investors in the Australian sharemarket, with new analysis showing just how valuable the time horizon is for predicting future stock success, an investment specialist has advised.
Fidelity International has released data on the ASX Accumulation All Ordinaries Index (All Ords) which shows the market has provided investors with an 11.4 per cent annualised return since 31 December 1979.
Providing analysis on the findings, Fidelity International’s cross asset investment specialist, Anthony Doyle, has explained that the length of time an investor intends to hold their investment is an important consideration,
“as those with a longer time horizon have a greater likelihood of experiencing a positive return”.
“For example, if an investor had bought at the index high before the GFC (on 1/11/2007), one year later their investment had fallen in value by 39 per cent. Three years later, the market was still down by 20 per cent. On the 10-year anniversary of the investment in 2017, it had risen in value by 39 per cent,”
he outlined.
“Today, the value of the investment has appreciated by 67 per cent.”
Highlighting just how important the time horizon is, Mr Doyle said that
“an analysis of daily returns of the All Ords Index since 1979 suggests shows that 100 per cent of investment periods greater than 10 years had appreciated in value”.
“In addition, an impressive 91 per cent of three-year holding periods generated a positive return. Looking at shorter time horizons, 78 per cent of all one-year periods had risen in value, while on any given day there was a 54 per cent probability that the Australian equity market was up.”
Despite such impressive annualised returns being on offer, Mr Doyle has noted that the value of the index the day an investor buys in, and the value of the index on the day that investor sells out, is still of utmost importance.
Holding Periods and Likelihood of Positive Markets
For an average holding period of one day, 54 per cent of holding periods of this length return positive results for investors.
- This positive percentage jumps to 62 per cent when stocks are held for one month.
- The positive figure jumps again for stocks held for one year, with 78 per cent of holding periods providing positive returns.
- At the three-year mark, more than nine times out of 10 (91 per cent), an investor would net a positive return on their original All Ords investment.
- Once an individual has held stocks for 10 years, there’s a 100 per cent guarantee on a positive return, which is also evident at the 15-year, 20-year and 30-year mark.
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