Investment truths produce long-term success

Dana R. Consler, The Daily Record Newswire

The last five years have sent stocks on a wild ride. First, the October 2007 to March 2009 Great Recession and bear market drove stocks down 50 percent, then the bull market boosted stocks up over 100 percent in under four years.

But stocks have averaged less than 1 percent annually since October 2007. Over the same period, not-so-boring bonds have averaged about 6.5 percent annually and gold has doubled. Market volatility, uncertainty in Washington and a weak economy have investors nervously asking “What should I do next?”

Now is an ideal time to pause and regroup with your investments. Events that shape our times can be important in the short run, but are largely just “noise” in the long term. These investment truths are absolutely necessary for your future success.

1. Time is money — When you invest, you invest time as well as your money. Time in the market is what works, not market timing. Time is the key factor in producing wealth. Compounding cannot work for you if your portfolio suffers large losses. Even low positive returns will eventually create wealth through compounding of those returns over time.

2. Diversification is a must — Proper diversification means spreading your risk across many asset classes and styles, even some that make you nervous. If you are comfortable with everything you own, those investments are likely closely correlated. They’ll tend to move up and down together. The greater the number of different asset classes and styles you own, the better the chance that something will be performing well, regardless of how the broad markets perform.

3. Asset Allocation Drives Long Term Results — Your long-term performance is determined by how your money is allocated between stocks, bonds, alternatives and cash. Roughly 70 percent to 90 percent of the variability of returns over time is explained by asset allocation. Effective asset allocation far exceeds the impact of security selection or market timing. Effective asset allocation reduces risk.

4. Stocks are the superior asset class — Stocks outperform bonds and cash over long time periods. They belong in virtually every investor’s asset mix, through good markets and bad. Determine the appropriate level for stocks based on your age, time horizon and risk tolerance. Then stick with it, gradually reducing stock exposure as you get older.

5. Don’t speculate — Speculation is trying to time short term market movements. Making short term bets increases the risk of losses. Resist the temptation to try this hoping to “make up” for prior losses. Lack of good diversification is also evidence of speculation.

6. Risks may not be obvious — Even cash can be risky.  Guaranteed bank deposits today have a negative return after taxes and inflation. Investors perceive the least risk when markets are soaring and risks are the highest. But they are sure risk is the highest when markets are at bottoms, when risk is actually at a low point. Markets move from undervalued to overvalued and back again. But we only get validation of this after the fact. Mutual fund investors have pulled almost $300 billion from stock funds over the last four years, while stocks have doubled in value. Over the same period, they’ve invested over $1 trillion in bond funds. Yet today, bonds may be more risky than stocks.

If you are a serious long term investor, incorporating these truths into your portfolio is the path to achieving long term success.


Dana Consler is executive vice president of Karpus Investment Management, a local, fee-based, independent, registered investment advisor managing assets for individuals, corporations, unions, nonprofits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, N.Y. 14534; phone (585) 586-4680 or email


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