Playing the odds: How long should long-term investing be?

Holding period of 3 yrs reduces chances of negative returns by a half compared to 1 year

The old cliche about long term investors making more money seems borne out by Sensex data over the last 25 years. Investors who bought at the beginning of the calendar year and held on for ten years have never lost money. If this seems too much of a wait, some of the benefits of a longer tenure also accrue to investors who held on for lower durations.

A holding period of at least three years reduces chances of negative returns by half compared to a one year time frame, and results in an eight to ten chance of making gains. Probability of gains and losses over various holding periods given below:

 

  1 Year 3 Year 5 Year 10 Year Probability of Loss 33.33 16.13 10 0 Probability of Making Money 66.67 83.87 90 100 No of Observations 33 31 30 25 Negative Return Observations 11 5 3 0 Positive Return Observations 22 26 27 25 Maximum Returns (CAGR) 92.88 49.61 43.02 30.53 Minimum Returns (CAGR) -52.48 -14.35 -2.49 2.89 Average Returns (CAGR) 19.89 17.28 16.94 17.05
Source:  Mirae Asset Global Investments India