Long-term investing
The Advocate, Wednesday March 2, 1994
When you invest your money, how long do you invest it for? What I tell my clients is that they need to have at least a five-year horizon. The longer, the better.
I was just reviewing the 39 year record of the Templeton Growth Fund.
It is rather revealing. It has every 5, 10 and 20 year period listed, starting from 1954 to 1993. The following are the performance returns on an assumed net investment of $10,000:
Five year periods: best value, 1976 to 1981, $36,698; worst value, 1986 to 1991, $13,449. ten year periods: best value, 1976 to 1986, $89,672; worst value, 1954 to 1964, $24,557. Twenty year periods: best value, 1967 to 1987, $389,7000; worst value, 1954 to 1974, $103,613.
The first 20-year period was the worst. In the last 20-year period, it is worth $206,256. Twice as much! It seems the worst is well behind us.
The value at the end of the entire 39-year period is $2,348,625. Clearly, the longer you kept the dollars invested, the better the return.
Suppose you invested $10,000 in th eTempleton Growth Fund in 1973 when you were 25. You are now 45 and have $206,526. You plan on working at least another 10 years before you retire. (Freedom 55! I'm sure you've heard that before.)
Now what do you do with the $206,526? You probably keep it invested in the Templeton Growth Fund. Correct? Ten years later you decide to retire.
At an average of 15 per cent compound growth, you now have approximately $835,513.
Now what do you do with the money? Cash it in?
Where do you put it then to receive an income? What most people do not realize is that an income settlement option is built into a mutual fund contract. It is called a systematic withdrawal (SWP) program.
It is completely flexible and can even be indexed to the cost of living.
The comforting thing at that time is that you don't have to make another decision where to put the money.
All you have to decide is how much of an income you want.
Let me go back to the question I asked at the beginning of this article.
How long do you invest your money for? Answer: for the rest of your life. Your money needs to be put somewhere.
Why not pick a long term performer? Yet, many go-go funds are sold mainly on short-term numbers. Buyer beware.
Although past performance cannot guarantee future performance , I personally sleep better knowing my dollars are in a 39 year old fund worth approximately two billion!
We at Regal have produced a chart on the Templeton Growth Fund showing investment results for $10,000 invested for every 10 and 15 year period from 1964 to 1993.
I will gladly send a copy of it to anyone interested.
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