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By Chase Fowler, Financial Advisor
Recently I came home to an interesting scene. My two kids were huddled in my son’s room where a warm glow was coming out. Inside, my children were huddled around a rotating incubator with eight chicken eggs in them.
Despite my surprise, the kids were already in the process of naming these unhatched eggs and I knew there was no undoing what was already in motion. After 21 days of precise temperature and humidity, we had six baby chicks chirping throughout the house.
Now, knowing who I am, I began to do a little chicken math to realize what I was fully getting into. It takes about 20 to 28 weeks for these little chicks to begin laying eggs. When they do, they could lay four to five eggs a week. For six chicks, that would give our family roughly 1500 eggs per year.
Now, my attitude has greatly improved when I think about the need for feed, coops, and general hours it will take me to welcome these little chicks as a part of our lives. It reminded me of the need to pull back at times and realize that it takes time to fully see the effects of things in life.
We can always discuss the various nuances and details of the current micro- and macro-economic factors, but there is one thing we need to remember.
We are long-term investors.
It’s a simple principle that we must always remind ourselves of as investors, in the good times and in the bad.
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For example, stocks had a high of 20% annualized returns and a low annualized return of -1% throughout the rolling 10-year periods from 1950-2023. We can see the farther we go out in the timeframe, the less variance of returns these assets experience.
Long-term investing strategy
Long-term investing is a strategy that emphasizes holding investments over extended periods to achieve significant financial growth. This approach stands in contrast to short-term trading, which often seeks quick gains and can expose investors to higher risks and market volatility.
"The stock market is designed to transfer money from the active to the patient.” - Warren Buffett
Warren Buffett, one of the most successful investors of all time, underscores the value of patience in investing: Buffett’s wisdom highlights that long-term investing rewards those who remain patient and focused on enduring value rather than reacting to short-term market movements.
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When you try to sell at the highs and buy at the lows, you have to be right twice. This chart shows us that just missing 10 of the best days during the investment period from 2004-2023 would have cut your annualized return from 9.7% to 5.5%. Additionally, six of the seven best days in this time-period occurred after the worst days.
One of the primary advantages of long-term investing is the power of compounding. Compounding allows earnings from investments to generate their own earnings, creating a snowball effect of growth over time.
"Our favorite holding period is forever.” - Warren Buffett
This philosophy reflects the potential for significant returns through sustained investment and reinvestment of profits.
So why would you not be 100% invested in equities forever?
It has to do with a combination of risk tolerance paired with the objectives and goals of the money invested. When we reach targets or goals, where we can successfully replace workplace income with our portfolios, we can start to make adjustments to reduce volatility and risk to improve the income stream needed for retirement.
So how do we evaluate if we are at that place? First off, a full retirement plan would need to be evaluated by your financial advisor.
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While we all feel the ebb and flow of market movements, we must hold true - we are first and foremost long term investors.
Whether or not I get exactly five eggs from each chicken weekly doesn’t change the fact that I’m keeping these chickens. If I only get one egg from a certain chicken, this doesn’t mean we’re sending it out to pasture. We’re in it for the long haul, knowing the long-term potential.
Why are we talking about this principle when markets are near all-time highs or lows? While there is still positivity in the outlook for the markets, there will be lulls and even downturns in the future. As investors we have to constantly bring ourselves back to our core tenets.
Our portfolios, like my little chickens, will be able to far outgrow our investment if we give it the greatest growth tool, time.