As another AFL season comes to a close and as we congratulate Melbourne with a stunning Grand Final win; we also can't help but draw comparisons with what it takes to build a winning investment strategy with that of winning a premiership.
Prior to this year’s silverware, Demons supporters last tasted success in 1964, which was 57 years ago. That’s a long time between drinks and provides us with an opportunity to demonstrate the benefits of long-term investing.
As Advisers, we firmly believe that you need to have a long-term focus when investing in growth assets like shares and property. This is predominantly because, over shorter time periods, market fluctuations can dramatically affect portfolio values.
To illustrate the point of long-term investing, let’s assume that in 1964 a Melbourne Demons supporter, riding high off the back of a Grand Final win, invested $5,000 into the share market, and each year reinvested the dividends received. That money today would now be worth around $900,000 – a handsome return in anyone’s books.
It’s important to point out that our Melbourne supporter while waiting to taste Grand Final glory once again, lived through the Oil Crisis (1973), Stock Market crash (1987), Tech Wreck (2001), Global Financial Crisis (2008), and a Pandemic. While each of these events rocked the world’s share markets, the end result, as we see, is a large profit.
While our long-term supporters have been rewarded with solid returns the story is not so rosy for those that jump on and off the bandwagon. You know the type; cheering on their club through the good times but when times are tough, nowhere to be seen. If these supporters applied the same method to their investing they would be severely disappointed.
Suppose these bandwagon supporters tried to time the market by selling their investments when they thought things looked bad and then buying back in as the market improved. Now suppose that in doing so these investors were ‘out of the market’ during the ten best performing months of the past 57 years. If this were the case our short-sighted Melbourne supporter would end up with around $320,000. Almost a third of what they would have received had they stuck to a long-term buy and hold strategy.
So what can investors learn from loyal football supporters?
Even though there may be some pain along the way, if you stick with it, and maintain a long-term view, the returns will come.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.