Why Successful Investing Often Feels Boring

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When people think about investing, they often imagine excitement. Rapid market movements, strong short term gains and constant activity can make investing appear dynamic and engaging.

In reality, the most effective long term investment strategies often feel surprisingly uneventful.

For many investors, a portfolio that appears calm and even a little boring can actually be a sign that it is working exactly as intended.

Investment performance is often discussed in terms of average returns. While returns are obviously important, the path taken to achieve those returns can be just as significant.

Many investment comparisons focus primarily on average returns. However, the volatility and drawdowns experienced along the way can have a meaningful impact on both investor behaviour and long term outcomes.

Two portfolios may produce similar long term results, but the experience of holding them can be very different.

One portfolio may experience large swings in value during market upturns and downturns, while another may decline less sharply and recover more steadily over time.

Understanding how investments behave during difficult market conditions can therefore be just as important as looking at long term averages, which is discussed further in our article on why drawdown management matters more than market predictions.

Market declines are a normal part of investing. However, the size of those declines can have a significant impact on long term outcomes.

When a portfolio falls in value, it must generate a larger gain in order to recover.

Even relatively small declines require larger gains to recover.

For example

• A decline of 5 percent requires a gain of about 5.3 percent to recover.
• A decline of 10 percent requires a gain of about 11.1 percent to recover.
• A decline of 15 percent requires a gain of about 17.6 percent to recover.
• A decline of 20 percent requires a gain of 25 percent to recover.
• A decline of 30 percent requires a gain of about 42.9 percent to recover.
• A decline of 40 percent requires a gain of about 66.7 percent to recover.
• A decline of 50 percent requires a gain of 100 percent to recover.

As declines become larger, the recovery required increases significantly. This means that avoiding large losses can play an important role in supporting long term compounding.

For this reason many experienced investors and portfolio managers pay close attention to how investment strategies behave during periods of market stress. Strategies that have historically experienced smaller declines during difficult market conditions may help support more consistent long term outcomes.

Some investment strategies are designed to pursue higher growth and may therefore experience larger fluctuations in value.

These strategies can perform very strongly during favourable market conditions but may also experience deeper declines when market sentiment changes.

Other strategies place greater emphasis on diversification, disciplined portfolio construction and valuation considerations. These approaches may help reduce the severity of market declines during periods of market stress.

While no investment can avoid volatility entirely, different strategies can behave quite differently during challenging market environments.

For many investors, a smoother investment journey can make it easier to remain disciplined during periods of market uncertainty.

Large market swings can create emotional pressure and increase the temptation to make changes at the wrong time. This can sometimes result in investors moving away from long term strategies during periods of market stress.

Portfolios designed to reduce the severity of market declines where possible may help investors remain focused on their long term objectives.

For investors approaching retirement, managing the impact of market volatility becomes increasingly important, which is explored further in our article investment risk feels different near retirement.

Significant declines close to retirement can affect the sustainability of retirement income and increase the risk of drawing down investments during market downturns.

As a result, many retirement focused portfolios aim to balance long term growth with resilience during periods of market stress.

Successful investing is rarely about constant excitement or dramatic short term gains. More often, it is about maintaining a disciplined approach through different market environments.

Well constructed portfolios aim to deliver strong long term outcomes while managing risk and volatility as effectively as possible.

For many investors, a portfolio that feels steady and uneventful may actually be a sign that the investment strategy is working exactly as intended.

Paul Tamaschke

Principal Financial Adviser, Smart Wealth Financial  

If this article has prompted questions about your own position, an initial conversation can help bring structure and clarity.

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