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Breaking news: The best investment strategy ever is unlikely to ever be the best investment overall in any given year.

The quote in the graphic above comes from this article on Citywire. It is funny  but it has a serious side. 

Low cost Funds

I am a big fan of using low cost index funds. They make sense to me in most circumstances.

The basic premise is captured really well here  – Buffet explains why passive investing is a winning strategy. (No really you should read it).

This does not mean that I think passive investments won’t underperform ever.

It means I believe that over the long-term (10 years plus):

Lower costs plus market returns = PASSIVE

will beat

Higher costs attempting to capture mispricing of value, thematic investing, predicting the economy and market timing = ACTIVE

In my  mind it is accepting that it is hard to pick winning strategies consistently over long periods – see graphic below.

This matrix shows how different things you can invest in (also called asset classes) performed over the last 10 years (by calendar year).

The colour-coding is designed to make comparison a little easier. (Let’s be kind, finance people are human and don’t always achieve their goals….)

But the idea is pick a colour (asset class) and move through the years.

Chances are you will notice some trends that develop.

Appreciate the trends

They are true for each asset class to varying degrees:

1. No single colour stays at the top consistently. 
2. No single colour stays at the bottom consistently. 
3. If you have been at the top recently, you are likely to find yourself close to the bottom at some point (soonish). 
4. If you have been at the bottom, you are likely to find yourself near top spot at some point (soonish). 
5. The only thing certain is the impossibility to predict which will happen when. 

What can you do about this?

Accept that trying to pick the right investments year-in-year-out is tough.

Give yourself your best chance of success by investing to a goal or time horizon.

This will help limit the downside potential in shorter-term objectives. 

It will allow you to capture more upside for longer-term goals. 

You will very rarely be the best performer in any given year but overall you are likely to make the best progress to the outcome you want.

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It is not the drill that we want but the hole.

It is not the investment itself that has value, but rather what that investment allows or achieves which is most valuable.