Of course this growth does not happen overnight. In fact, there isn’t even much growth after a few years. It can take well over 40 years for an Oak tree to reach its full height and it is only then that it will start producing Acorns.
An English oak tree will typically grow around 50 cm each year.
If you planted an English oak tree you wouldn’t see much progress if you went and checked on it every day. It would barely change day by day.
Actually, in the early days, much of the work is done below, underground, growing roots.
If you left it and came back to it every five or ten years, then you would see progress. It would look like a completely different tree each time.
Usually things go lower before they get higher.
Stacking 28 fully grown English oak trees on top of each other would get you to the height of the Burj Khalifa – the tallest building in the world.
Situated in Dubai, at 828 meters this tower is immense. Traveling up 140 floors in the world’s longest elevator at 22 MPH is a definite ear popping experience.
Work started on this enormous building back in January 2004. Although you could argue, work started long before this if you include the time it takes to find land, get planning permission and design the building.
By January 2005 the only progress you would have seen would have been a giant hole as the foundations were being laid 15 meters below ground.
Even after two years of work the building was still only 84 meters high. This works out to be growth of about 11 cm a day.
Had you walked past and looked at the Burj Khalifa being built every day you would not have noticed any progress at all. There would be a lot of noise and equipment but not much movement upwards.
It was not until January 2010 that the Burj Khalifa finally opened.
If you had viewed the beginning of the build you would have seen nothing. If you then came back and looked again 6 years later you would have seen the tallest building in the world.
The same will be true when it comes to investing.
When you first invest you are unlikely to see much progress and there’s a good chance your money might go down and decline in value before you see any growth.
Using the US stock market as an example, since 1926, around 25% of one year periods would have seen a negative return. Another way to think of this is to say you have a 25% chance that your investment might decline in any given year.
If you look at your investments on a daily basis then you will find the value goes up and down every day like a yoyo. Millions of different buyers and sellers reacting in different ways to the news of the day.
You won’t feel like you are making progress.
However, leave your investments alone and don’t look at them and then the magic happens.
Using the same US stock market data, nearly 88% of rolling five year periods ended with a positive return.
Nearly 95% of rolling 10 year periods were positive and if we look at this data over 20 year periods it’s virtually 100%.
Time is the best way to achieve amazing growth of your investments.
Stock market, otherwise known as equity investing, is often criticised when compared with property.
It’s often said that property prices only ever go up and prices are far less volatile.
Well, your home’s value is only less volatile because you don’t value it every day.
If you went out and about every day and asked 100 people what they would pay for your house you would get wildly different answers every time. The price would be a lot more volatile.
Here is the average UK property price for the last four months of 2022:
September 2022 = £292,404
October 2022 = £292,288
November 2022 = £292,552
December 2022 = £291,361
No much movement and in fact a small decline over this short timeframe.
If we go back 10 years to December 2012 then the average house price was £168,843. Again, huge progress once you extend the timeframe.
Not looking at your investments is such a powerful rule to follow because it stops you making mistakes.
It stops you worrying about what is going on with the global economy every day. This in turn means you don’t make the wrong decisions like selling all your investments when the market has fallen.
Provided you have picked an investment strategy aligned to your long term goals then there is nothing you can do to impact performance on a daily basis. So why check?
Extend the time periods for when you check your investments and you will be pleasantly surprised.
One of the world’s most famous and successful investors, Warren Buffett, is attributed to have said…. “Someone is sitting in the shade today because someone planted a tree a long time ago.”
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.