Long-term investing should be easy. However studies around the world have consistently shown that investors don’t achieve the returns that are there for the taking.
Benjamin Graham was Warren Buffett’s mentor. He once said that “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
Long-term investing should be easy. Over the past 110 years, the Australian sharemarket (represented by the All Ordinaries Accumulation Index) has had performance of around 13 to 14 per cent a year on average. Most people would take that long-term return every day of the week.
However, studies around the world have consistently shown that investors don’t actually achieve these returns … returns that are there for the taking.
The truth is that if investors simply invested in the broad sharemarket (Australian and global alike) and stick to a long-term strategy, they would achieve very good performance. Long term doesn’t have to mean 110 years, but over rolling 10-year periods this is still the case.
Even Warren Buffett has said that most investors should avoid expensive fund managers and stockbrokers and invest in lower-cost passive funds. Of course those stockbrokers and expensive fund managers are quick to disagree with Buffett, asking investors, “Why would you accept the average sharemarket return when I can beat the market for you?”.
Written for The Sydney Morning Herald.