📣 Kavout Algo Financial – Investor Insights Newsletter -- part-1
Why Long-Term Investing Is the Most Reliable Path to Wealth#
From Your Financial Advisor
One of the most important principles we reinforce with clients is this:
Long-term investing is the strongest—and most reliable—driver of total wealth accumulation.
Not perfect timing. Not stock picking. Not reacting to news headlines.
Time + compounding = wealth.
In this month’s newsletter, we break down the key reasons long-term investing works—and why delaying (or interrupting) it can cost investors more than they realize.
1. Long-Term Returns Are Surprisingly Consistent#
Despite recessions, wars, rate cycles, bubbles, and technology disruptions, long-term U.S. stock returns have remained remarkably stable.
Historical Total Stock Market Returns (Ibbotson & S&P):
- 10-year average: ~9–11%
- 20-year average: ~10%
- 30-year average: ~10%
Yes, yearly returns fluctuate wildly—from –37% to +37%. But over time, returns consistently converge toward ~10%.
A common (and costly) mistake
Many people stay entirely in savings or bank accounts for years simply because life is busy. But that decision effectively locks in a long-term return of ~3%—far below the market.
The truth is simple:
A comfortable retirement is rarely built through saving alone. It’s built through investing.
2. Compounding Needs Time — and Time Cannot Be Replaced#
Compounding becomes dramatically more powerful the longer money stays invested.
If you invest $10,000 at 10% per year:
- 10 years → ~$26,000
- 20 years → ~$67,000
- 30 years → ~$174,000
- 40 years → ~$452,000
The final decade contributes more than the first three decades combined. That is the power of compounding.
The cost of not investing
After four decades, an investor who only earns ~3% (bank/savings) may end up with only 7% of the wealth of someone who invested consistently.
3. Market Timing Doesn’t Work — Missing a Few Good Days Is Devastating#
Thinking you can “wait for the right time” is natural—but mathematically dangerous.
J.P. Morgan study (1999–2023):
- Fully invested → ~7.7% annualized
- Miss the 10 best days → ~3.0%
- Miss the 20 best days → ~0.1%
Most of the best days occur within 10–15 days of the worst days, meaning recoveries come fast.
My own experience during the Global Financial Crisis taught me this firsthand: I exited quickly and avoided big losses, but re-entering was incredibly difficult. A few hesitations caused me to miss much of the rebound—and capital gains taxes reduced my reinvestable capital even further.
Unless you have a precise re-entry strategy, staying invested is almost always the wiser path.
4. Long-Term Investing Has Never Failed Over 20+ Years#
Based on nearly a century of Ibbotson data:
- Every 20-year period has delivered positive stock returns
- No 20-year period has been negative
- Even the worst-case 20-year scenario produced positive inflation-adjusted growth
Short-term investing = uncertainty. Long-term investing = probability. And the probabilities overwhelmingly favor the patient investor.
5. Wealth Is Built in Decades, Not Days#
As your advisor, my role is not to predict markets—it is to help you:
- Stay disciplined during volatility
- Avoid emotional decision-making
- Capture the full benefit of long-term compounding
Staying invested is not just good advice. It is mathematically the strongest wealth-building strategy available.
Final Thought#
Long-term investing is not a belief system—it is a mathematical advantage.
When you remain invested, diversified, and consistent, the market’s growth becomes your engine for long-term financial security and freedom.
If you’d like help reviewing your allocation, optimizing for long-term growth, or planning contributions, I’m always here to support you.