The allure of quick wins in the stock market is undeniable. Media headlines can glorify short-term trading successes, which can tempt even the most prudent investors. However, statistics consistently underline a critical truth: the likelihood of achieving positive returns increases significantly with a longer investment horizon.

Short-Term Volatility vs. Long-Term Stability

 

Historic likelihood of earning positive returns over rolling holding periods

Source: RBC Wealth Management, Bloomberg; data through 12/31/23

 

Investing in the stock market over short periods requires navigating a minefield. Market volatility can erode gains and amplify losses unpredictably over the short term. Data from the S&P 500 index reveals that the probability of experiencing a negative return in any given day is approximately 48%. Extend that to a yearly basis, and the probability of a negative return decreases but remains considerable at 21%. This is one reason we advocate for ensuring clients have short term funds set aside, and not invested – the short-term world of investing is unknowable.

Contrast this with long-term investing. Historic data demonstrates that the likelihood of a negative return in the S&P 500 diminishes drastically over longer periods. Investments held for 10 years, features a 3% probability of a negative return. Over 20 years, the likelihood further reduces to 0% - I like those odds! These statistics underscore the power of patience and the benefits of compound interest. While the short-term is unknowable, the long-term inevitable.

The Advantage of Time

 

Why does time matter so much in investing? It's all about the smoothing effect of the market's ups and downs. While short-term investments are heavily impacted by immediate market fluctuations and global events (see chart below), long-term investments benefit from the overall upward trajectory of the market. 

 

 

S&P 500 Index - 90 Year Historical Chart | MacroTrends

 

Consider the performance of the S&P 500 from 1980 to 2025 in the chart above. An investment in 1980 would have experienced significant fluctuations during this period, including the dot-com bubble the 2008 financial crisis, and the impact of Covid-19. However, despite these crises, a long-term investor would have seen growth due to overall economic expansion and the compounding of returns.

Strategic Long-Term Investment

 

The key to successful long-term investing is not only patience but also a well-diversified portfolio that can weather economic cycles. This approach reduces risk and exploits the growth potential of different sectors and geographies. It also equips investors with emotional patience to withstand downturns in the market and mitigate the psychological instinct to sell when markets are at their worst.

While the temptation to seek quick profits in the stock market can be strong, the statistical advantages of long-term investing are clear. Investors who commit to a longer time horizon not only mitigate their risks but are also more likely to see positive returns. The lesson is straightforward: invest with the future in mind, making good decisions in the present.

For those looking to build lasting wealth, the choice is clear long-term investing is not just a strategy, but a clear pathway to financial success.