With stocks pulling back to kickoff the final week of trading in January, there is a powerful illustration below regarding “time” and investing.
When asked what he considered man’s greatest discovery, Albert Einstein replied, without hesitation, “Compound interest!”
Investment Strategy: “Time”
January 28 (King World News) – Here is a portion of a note from Jeff Saut, Chief Investment Strategist at Raymond James: “Time is Archimedes’ Lever in Investing – Archimedes is often quoted as saying, ‘Give me a lever long enough and I can move the earth.’ In investing, that lever is time…
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The length of time investments will be held, the period of time over which investment results will be measured and judged, is the single most powerful factor in any investment program. If time is short, the highest investments – the ones an investor naturally most wants to own – will be undesirable, and the wise investor will avoid them. But, if the time period for investing is abundantly long, the wise investor can commit without great anxiety to investments that appear in the short-run to be very risky.
Given Enough Time
Given enough time, investments that might otherwise seem unattractive may become highly desirable. Time transforms investments from least attractive to most attractive – and vice versa – because, while the average expected rate of return is not at all affected by time, the range or distribution of actual return around the expected average is very greatly affected by time. The longer the time period over which investments are held, the closer the actual returns in a portfolio will come to the expected average.
The following table shows the compounding effect on $1.00 invested at different compound rates compounded over different periods of time. It’s well worth careful study – particularly to see how powerful is time. That’s why time is the “Archimedes lever” of investment management.” …Investment Policy, Winning the Loser’s Game, by Charles D. Ellis
$1 Invested At Different Compound Rates Over Time
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