Long-Term Investing: Returns, Strategies, and Advice

Time: The Investor's Greatest Ally

Long-term investing is not a trend, nor is it one strategy among many. It is the only approach that has proven itself beyond doubt over more than a century of financial data. Whether we are talking about stocks, real estate, or bonds, time transforms short-term volatility into steady and predictable performance.

Yet the majority of French savers invest with too short a horizon. According to AMF statistics, the average holding period for an investment fund in France is less than three years. This is far too short to fully benefit from the potential of financial markets. The investors who achieve the best results are those who invest over 15, 20, or 30 years, with consistency and discipline.

Historical Returns by Asset Class

Understanding the historical returns of different asset classes is fundamental to building a long-term investment strategy. The figures below are based on data spanning several decades, and in some cases over a century.

Equities: 7 to 8% Average Annual Return

Equities are the best-performing asset class over the long term. The average real annual return (after inflation) of global equities is approximately 5 to 6% over a century. In nominal terms (before inflation), this represents approximately 7 to 10% depending on the period and geographic region.

Some concrete benchmarks:

• S&P 500 (US equities): average annual return of approximately 10% over the last 50 years, with dividends reinvested
• MSCI World (global equities): average annual return of approximately 8% over the last 30 years
• CAC 40 (French equities): average annual return of approximately 7% over the last 30 years, with dividends reinvested (the headline CAC 40 index does not account for dividends and therefore understates actual performance)

These are average returns. They mask years of strong gains (2019: +30% for the S&P 500) and years of sharp declines (2008: -38% for the S&P 500). But over 20 years or more, the upward trend has always prevailed.

Bonds: 3 to 4% Average Annual Return

Government and corporate bonds offer a lower return than equities but with significantly reduced volatility. Over recent decades, European investment-grade bonds have returned an average of 3 to 4% per year in nominal terms.

Bonds play a crucial role in a diversified portfolio:

• They reduce overall portfolio volatility
• They provide regular income through coupon payments
• They tend to perform well when equities decline (negative correlation, though this relationship has weakened recently)
• They serve as the tool for gradual de-risking as the investment horizon approaches

Real Estate: 5 to 6% Average Annual Return

Real estate, whether held directly or through SCPI, has historically delivered a total return (capital appreciation plus rents) of approximately 5 to 6% per year in France. This return typically breaks down as:

• Net rental income: 3 to 4% for direct property, 4 to 5% for SCPI
• Long-term capital appreciation: 1 to 2% per year on average, highly variable by geographic area

Real estate offers the advantage of lower perceived volatility than equities (property prices do not fluctuate in real time like stock prices), a natural leverage effect through mortgage financing, and specific tax advantages (LMNP regimes, deficit foncier, Pinel, etc.).

Savings Accounts and Fonds en Euros: 1 to 3% Return

Secure investments (Livret A, LDDS, fonds en euros in life insurance) offer a low but guaranteed return. Historically, the Livret A has returned an average of 2 to 3% per year, with periods above 4% and periods near 0.5%.

These vehicles are not long-term investment tools. They serve to build an emergency fund and secure a portion of your wealth. Over the long term, their return barely covers inflation, meaning the purchasing power of your savings is merely maintained, with no real growth.

The Impact of Time on Volatility

Volatility is the investor's nemesis. Seeing your portfolio lose 20 or 30% of its value is a traumatic experience that pushes many savers to sell at the worst moment. Yet volatility mechanically decreases with time.

The Dispersion of Returns Narrows

Over a single year, equity returns can vary enormously. The best years have seen gains of 40 to 50%, the worst declines of 30 to 50%. Over 5 years, the range narrows considerably. Over 15 to 20 years, it becomes very tight and systematically positive for a diversified portfolio.

Take the example of the MSCI World over the last 50 years:

• Over 1 year: annual return between -40% and +50%, a 90-point range
• Over 5 years: annualized return between -5% and +25%, a 30-point range
• Over 10 years: annualized return between 0% and +18%, an 18-point range
• Over 20 years: annualized return between +3% and +14%, an 11-point range

This convergence toward the mean is a fundamental statistical phenomenon that explains why long-term investing is far safer than short-term speculation.

No Losses over 15 Years in Global Equities

A remarkable fact: over the last 100 years, no 15-year period has produced a loss for a diversified investor in global equities. Even an investor unlucky enough to have invested the day before the 1929 crash would have recovered their initial outlay within 15 years and generated a positive return beyond that.

This does not mean that losses over 15 years are impossible in the future, but the historical record is extremely reassuring for patient investors.

Why You Should Not Try to Time the Market

Market timing -- trying to buy at the bottom and sell at the top -- is every investor's fantasy. In practice, it is a losing strategy for the vast majority of individuals, including professionals.

The Numbers Are Unequivocal

A well-known study by J.P. Morgan shows that over the period 2003-2023, an investor who stayed continuously in the S&P 500 would have achieved an annualized return of 9.8%. Had they missed the 10 best trading days (out of approximately 5,000 sessions), their return fell to 5.6%. Had they missed the 20 best days, their return fell to 2.9%. And had they missed the 30 best days, they would have earned a meager 0.8% per year.

These best trading days often occur in a completely unpredictable manner, frequently just after the worst days, in the heart of crises. The investor who exits the market out of fear of decline systematically misses the rebound.

The Cost of Inaction Is Enormous

Staying out of the market "waiting for the right moment" has a considerable opportunity cost. Money sitting idle in a current account earns nothing, while the market advances on average by 7 to 8% per year. Waiting one year "as a precaution" represents a potential shortfall of several thousand euros on a capital of 50,000 euros or more.

DCA: The Patient Investor's Strategy

Dollar Cost Averaging (DCA), or scheduled investing, is the method best suited to long-term investment. It involves investing a fixed amount at regular intervals, regardless of market conditions.

How DCA Works

Each month, you invest, for example, 300 euros in a MSCI World ETF. When the price is high, you buy fewer shares. When the price is low, you buy more shares. Over the long term, your average purchase price is smoothed out and you avoid the risk of investing everything at the peak.

DCA offers several major advantages:

• Automated discipline: the automatic transfer eliminates emotional decisions
• Risk smoothing: you are never exposed to the risk of poor timing
• Accessibility: you do not need a large initial capital
• Simplicity: once set up, it requires no intervention

DCA vs Lump Sum: The Debate

Academic studies show that lump-sum investing is statistically superior to DCA approximately two-thirds of the time. This is logical: if the market rises on average, it is better to be exposed as early as possible. However, DCA offers valuable psychological protection and results that are more than sufficient for the individual investor.

For monthly investment from your income, the debate does not even arise: DCA is the only option since you do not have the total sum available upfront. For capital already available (inheritance, exceptional bonus), a reasonable compromise is to invest 50% immediately and spread the remaining 50% over 6 to 12 months.

Behavioral Biases: Your Worst Enemies

Behavioral finance has identified numerous cognitive biases that push investors to make poor decisions. Knowing them is the first step to avoiding them.

Loss Aversion

Studies show that the pain of a loss is felt approximately twice as intensely as the pleasure of an equivalent gain. Losing 1,000 euros hurts more than gaining 1,000 euros feels good. This bias pushes investors to sell too early when their portfolio declines (to "limit losses") and to not invest at all for fear of losing.

Recency Bias

This bias consists of extrapolating the recent past into the future. After a year of strong gains, investors are euphoric and invest heavily. After a year of declines, they are paralyzed and dare not invest. This is exactly the opposite of what they should do.

Overconfidence

Many investors overestimate their ability to predict market movements. They believe they can identify the right stocks, time the market, or spot winning sectors. Statistics show that more than 90% of actively managed funds underperform their benchmark index over 15 years. If professionals cannot do it, individual investors have even less chance of succeeding.

Confirmation Bias

Investors naturally seek information that confirms their choices and ignore information that contradicts them. If they have bought a stock, they will pay close attention to positive analyses and minimize warning signs. This bias can lead to holding losing positions for too long or over-concentrating a portfolio.

Concrete Figures: The Power of Time

The following figures concretely illustrate the impact of time on a regular investment in global equities (assumed average annual return: 7%).

300 Euros per Month for 10 Years

• Capital invested: 36,000 euros
• Projected final capital: approximately 51,800 euros
• Capital gain: approximately 15,800 euros (44% gains)

300 Euros per Month for 20 Years

• Capital invested: 72,000 euros
• Projected final capital: approximately 147,500 euros
• Capital gain: approximately 75,500 euros (105% gains -- gains exceed the invested capital)

300 Euros per Month for 30 Years

• Capital invested: 108,000 euros
• Projected final capital: approximately 340,000 euros
• Capital gain: approximately 232,000 euros (215% gains -- gains represent more than double the invested capital)

The difference between 20 and 30 years is spectacular: by investing 10 additional years (36,000 euros more), you gain 192,500 euros in additional capital. The final years are the most productive because the capital base on which compound interest applies has become enormous.

The Importance of Starting Early

Let us compare two investors who each invest 300 euros per month at 7% per year:

• Alice starts at 25 and stops at 35 (10 years, 36,000 euros invested), then lets her investment grow without adding anything until age 65
• Bob starts at 35 and invests until 65 (30 years, 108,000 euros invested)

Result at age 65:

• Alice: approximately 389,000 euros (on 36,000 euros invested)
• Bob: approximately 340,000 euros (on 108,000 euros invested)

Alice, who invested 3 times less money but started 10 years earlier, ends up with a higher capital than Bob. This striking example illustrates just how much time is the most determining factor in financial success.

Building Your Long-Term Portfolio

A long-term investment portfolio should be simple, diversified, and low in fees.

The Standard Allocation by Age

The classic rule is to subtract your age from 100 to determine the percentage to invest in equities. At 30, 70% in equities. At 50, 50% in equities. This rule is a starting point to be adjusted based on your risk tolerance and objectives.

Recommended Vehicles

• MSCI World ETF: exposure to over 1,500 companies across 23 developed countries, with fees of 0.12 to 0.38% per year
• S&P 500 ETF: the 500 largest US companies, with fees of 0.07 to 0.15% per year
• Aggregate Bond ETF: government and investment-grade corporate bonds, for the secure portion
• SCPI: real estate diversification without property management

Annual Rebalancing

Once a year, check that your actual allocation still matches your target allocation. If equities have risen significantly, they represent a larger share of your portfolio than planned. Sell the excess to purchase bonds or fonds en euros. This mechanical rebalancing forces you to sell what has risen and buy what has fallen, which improves risk-adjusted returns over the long term.

Conclusion: Patience Is a Profitable Virtue

Long-term investing is counterintuitive in a world that values immediacy and speed. Social media showcases "traders" making fortunes in days, financial media comments on every daily market move, and the financial industry encourages hyperactivity to generate commissions.

The reality is far more boring, and far more profitable. The investor who methodically places a few hundred euros per month into diversified ETFs, who does not check their portfolio every day, who does not panic during crises, and who lets time do its work, beats the vast majority of finance professionals. The secret is not in stock selection or market timing. It is in patience, consistency, and discipline. And these qualities are accessible to everyone.