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1 Simple Chart to Show Why Long-Term Investing Wins

I understand how tough the stock market is right now. Since peaking at 3,550 points in April 2015, the Straits Times Index (SGX: ^STI) is now 24% lower at just 2,692. We’ve only had seven trading days so far in 2016, and the index has already clocked losses in six of those days.

It’s difficult to be a long-term investor in such conditions. But in times like these, it is worth keeping in mind the idea that time can really be an investor’s greatest ally.

To show you why, I had measured returns on each day for the Straits Times Index from 1 May 1992 to 12 January 2016 (that’s the longest timeframe for data that I could access from my provider, S&P Capital IQ) to plot the chart you see below:

Straits Times Index's odds of making losses from May 1992 to January 2016
Source: S&P Capital IQ; author’s calculations

A caveat: My chart is not perfect as it does not take into account both dividends and inflation. But, there’s still a very important and useful takeaway here: The longer you hold your stocks, the lower your odds of making a loss.

A holding period of one day means it’s a coin-flip for you when it comes to making a gain. But when your holding period is measured in years, your odds of success goes up – and at the 10-year mark, dramatically. When we look back in time, the Straits Times Index has never delivered a loss for an investor with a 20-year holding period.

Stocks fall every now and then. It’s just what they do and it doesn’t mean that the system is broken. Short-term pains are the price to pay for long-term gains. “Time in the market will be your greatest natural advantage,” financial advisor Nick Murray once wrote. We’ve just seen that he’s right.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.