Interactive: What Happens To Risk When Your Investing Period Lengthens?

Aug 08, 2017
Investing, Chart of the Week, Question of the Day

From Of Dollars and Data:

Over 1 year periods, markets can be very chaotic for both U.S. bonds and U.S. stocks. This is also true over shorter time horizons (i.e. monthly, daily, intra-day, etc.). However, the chaos fades as the time horizon increases. Below is an animation I created that shows the S&P 500 and U.S. 10-year Bond returns as they vary from a 1-year horizon to a 30-year horizon.

Here are two charts from his animation (it changes before your eyes if you cilck on the link above):

Looking at the one year chart, one can't help but notice the roller coaster ride that the stock investor experiences:


Looking at the rolling returns for a 30 year period and everything looks a bit more placid:

The author of the blog post argues that being long-term investors we should ignore the short-term "noise" coming out of the financial press. Why?

The problem with the market, and financial media generally, is the amount of noise that comes out on a daily basis. I cannot tell you how many times I have seen a headline like, “Stocks up/down after [insert event here].” Almost all of these events will have little to no impact on the trends underlying the stock market’s long term growth, yet long term growth prospects are nowhere to be found in the reporting. It gets even more entertaining when a news outlet explains why stocks are “up” in the morning to then later point out why they are “down” in the afternoon. And sometimes these market shifts are explained using the same event.


Check out the NGPF Data Crunch on stock market returns: Are Stocks A Risky Long-Term Investment?



About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.