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Passive Investing: luck or patience?

Passive Investing: luck or patience?

| October 22, 2020

Executive Summary

Professor Nixon studied passive investing in the S&P 500 Index over an extended period of time, January 1950 through December of 2018. He looked at investing a Lump Sum or a periodic monthly investment. He looked at 10, 20 and 30 year periods. He found a very wide range of historical outcomes. This range was totally based on the starting date because the actual investment itself was identical in all cases - the S&P 500 Index. He gathered data for every time period and summarized in some charts and graphs.

More discussion

The entire article is attached below for analytical folks who want to check the numbers.  Actual quotes from the paper are italicized.  Here as a direct quote is the Abstract:

"Passive investing over relatively long time-periods is a strategy followed by many individuals. In this paper, empirical evidence is presented beginning January 1950 that demonstrates that the success of this strategy is dependent not only on the length of the investment horizon, but also by the date of the initial investment. 10, 20, and 30-year periods are examined for both a lump sum initial investment and then for a monthly annuity investment. Longer horizons are shown to decrease the chance of an overall loss on a portfolio. However, different initial investment dates result in a wide range of ending portfolio values."

Still more discussion

Here's one example of the very wide range. More details in chart below. For the 30 year time period with monthly periodic investment of $50 (he calls it "annuity." In my 30 years in business I typically hear it called a "periodic investment." For purposes of this post and research, identical thing.) here is what he found:

"Nominal" maximum ("highest) result: $339,379.64

"Nominal" minimum ("lowest) result:    $65,783.04.

Stay tuned and please watch this space

I feel this research and these actual historical numbers speak plenty loudly. So I 'reserve the right" to refer to this post and the underlying research. Please stay tuned!

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