Investment returns: Time is the most important parameter

authored by
Christos Alonistiotis
05.02.2021
Empower your Future
3 minutes read

An investor who has decided to invest almost always asks: "When should I invest?" or "Is this the right time to invest?"

If an investor wants to enjoy the highest possible return on his funds, then he should be determined to follow a long- term investment plan.

An investor determined to invest in the long term is more likely to enjoy significant returns on his capital. This long-term process offers the possibility of smoothing out bad times resulting in better returns compared to the ones that would be generated in the case of an investor who moves on the basis of taking advantage of specific market cycles.

According to the analysis of stock market data, we have positive developments in the markets much more often than we have negative developments. Considering a period of 12 months, of course the probability of having a negative return is higher, but as we extend the time horizon, the probability of positive returns is significantly higher.

The chart below gives the odds of negative or positive returns at specific intervals, taking into consideration that an investor is invested in one of the major US stock indices and not in individual options.

Source: Thomson Reuters

The philosophy of constantly investing in a portfolio and achieving higher returns in the long run, is the heart of the XSpot Growth investment portfolio, which is captured diagrammatically below.

Investment period: 1 year

Investment period: 3 years

Investment period: 5 years

Remaining constantly invested, an investor manages to have an average annual return of 15.17% on the XSpot Growth portfolio. Assuming that an investor has lost 10 of the best sessions of the last five years, then the average annual return drops by as much as 35%. However, it is empirically observed that an investor is out of the market in periods of intense upward rally as he estimates that there are overvaluations.