The Importance of Long-Term Discipline

David Booth

The important thing about an investment philosophy is that you have one you can stick with”

— David Booth Chairman & Founder Dimensional Funds Advisors

The importance of Mr. Booth’s quote should not be dismissed lightly. Defining and following a strategy will help ensure you don’t bow to short term pressures, or fear, that can derail potentially higher gains you may have received had you not reacted to short-term swings or sequence of returns in the market. The below chart of the performance of the S&P 500 shows how those stocks performed over longer time horizons far better than US Treasury bills, except for a shorter time period of 14 years. If you look at the first column, the S&P 500 performed far better, relative to those US Treasury Bills, even when including the same 14 years of poorer performance.

Long term jpeg

Equities have provided significant premiums over longer time horizons, yet historical data show lengthy periods when Treasury bills have outperformed stocks.

Equities can reward investors who maintain a long-term outlook. But inconsistent short-term performance may test one’s commitment to a long-term strategy

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