55 Years of Data: Staying Invested Paid Off
By James Parkyn - PWL Capital - Montreal
Is the reward for long-term investing worth the wait? The numbers overwhelmingly say yes. Over the past 55 years, a dollar invested in a diversified international equity portfolio would have grown to over $16 after inflation.
That’s a return of more than 1,600%.
This was one of the remarkable findings of PWL Capital Senior Researcher Raymond Kerzerho in two recent blog posts and our Capital Topics podcast.
“The stock market is a money-multiplying machine for long-term holders of globally diversified equity portfolios,” Raymond says.
“Because the turning points between market cycle phases are largely unpredictable, the only reliable way to invest profitably is to stay invested over decades, ignore distractions from media news, and let returns compound.”
Takeaways for investing success
Raymond studied more than half a century of market history and distilled these core lessons for growing wealth:
· Stay invested. This means avoiding active trading.
· Be patient and think long term.
· Allocate a substantial amount to equities.
Raymond evaluated five portfolios to compare their returns. He found that a globally diversified equity portfolio had the best gains.
A portfolio of 30% Canadian stocks and 70% global ex-Canada markets delivered 5.19% in annualized real (after-inflation) gains from 1970 to 2024. A dollar invested in such a portfolio would have become $16.17. (Foreign withholding taxes and fund fees were factored in to simulate an actual investor experience.)
The downside: lots of stomach-churning fluctuation. At 12.88%, the volatility of this portfolio was highest of all those evaluated.
Bond gains unlikely to repeat
The least gains, unsurprisingly, came from a fixed-income portfolio fully invested in Canadian bonds. But even bond investors fared quite well. The annualized real return was 3.32% with a final real value of $6.03 for each dollar invested in 1970. Volatility was less than half that of equities—5.94%.
Raymond also evaluated three mixed portfolios with various combinations of stocks and bonds: 40/60, 60/40 and 80/20. These all had returns and volatility between those of the stock- and bond-only scenarios.
Raymond notes that the “very high” real return of Canadian bonds was unusual and unlikely to repeat in coming years. It was more than double the average return for global government bonds since 1900 and due in large part to the decline of Canadian bond yields and inflation from 1982 to 2022.
“Investors should not expect this type of performance to repeat,” Raymond writes. “Investors who seriously want to accumulate wealth need a substantial equity allocation.”
Let the market work
The key lesson is to “let the market do its job,” he says. “Some people will scoff at the notion of staying invested for 55 years. But even over 10 years, investors sometimes doubled their purchasing power. Think about it. Investors did not work for that money. The market did the work. All investors had to do was defer consumption and accept that volatility is inevitable.”
How much volatility? Markets experienced six bear markets (a 20%+ real decline) in the past 55 years. In other words, investors endured 1.1 such declines per decade on average. This included two “severe” bear markets (a loss of over 40%)—one during the 1973-73 oil shock and one during the 2000-2003 dot-com crash.
Bear markets lasted 21 months on average, with an average decline of 34% (calculated on a monthly basis).
63% of time in bear market or recovery
The recovery to pre-decline levels took 49 months on average. During this time, markets gained an average of 57%.
Interestingly, bear markets and recovery periods made up 63% of the time from 1970 to 2024. This means investors spent nearly two-thirds of their time either losing money or recovering their losses.
What happened after markets recovered to their pre-decline highs? This was where the benefits of patience really paid off. Markets continued to rise on average 41 months, returning 79%.
Bear markets are “a normal part of investing”
Raymond’s conclusion? “Investors should hold on to their portfolio and expect bear markets as a normal part of investing,” he said in our podcast.
“Successful investors tolerate long periods of minimal or even negative returns. These periods are the entry price to join the club of successful long-term investors.”
Those who stick with a diversified long-term investing plan are handsomely rewarded by compounding.
“Investors who benefited from this compounding of returns refrained from actively trading and let the market do its job,” Raymond says. “Trading interrupts the compounding of returns. Investment banks and trading platforms make money from your active trading, not you.”
If you jump ship, you risk locking in losses and losing out on the benefits of the inevitable recovery and expansion.
As Raymond concluded, “Just rebalance, never bail out. Your portfolio is there for life. It isn’t a temporary thing.”
Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website. Find PWL Senior Researcher Raymond Kerzerho’s blogs here and here and the podcast here.