The Gift of Investment Patience

It’s customary at this time of year for investment firms to publish a market outlook, but this is often little more than an educated guess about how markets will perform. A gamble if you like.

Instead, I want to welcome 2025 with a message about how patience and diversification make you a better investor. That’s what I’ve learned over 30 years in financial markets. It’s an education that I would like to share with others: after all, knowledge is invaluable.

This simple truth goes against the trend of speculative investing. You don’t have to look far to find self-proclaimed ‘investment gurus’ or ‘stock market experts’ encouraging investing in hot single stocks that are rising fast, enticing uneducated investors with the promise of substantial returns.

In fact, this form of investing isn’t that different from gambling, and sadly gambling is on the increase. Europe had almost 130,000 gambling properties in 2024, more than any other region globally.¹ Looking at the UK, over half (53%) of people aged over 16 made a bet last year, estimates the Gambling Commission. In Germany, about 1.3 million have a gambling disorder and another 3.25 million show signs of risky gambling behavior, according to Glücksspielatlas Deutschland 2023.

But gamblers never seem to accept that the odds are stacked against them – they stand a high chance of losing. By contrast, smart investing has historically led to gains over time. There’s always a risk you’ll lose but there are four ways to mitigate this.

Four rules of smart investing

1. Be patient

Let me start with patience, the antithesis of the gambler’s instinct. There’s strong evidence that if you invest for the longer term, you’re more likely to make a profit. Research from MSCI shows that a diversified portfolio of stocks and bonds (60% equities, 40% bonds) has historically made a profit over five years. MSCI studied five-year periods since 1970 and found that the average annualized return over a five-year period was 8%. Even in the periods that started with major market falls – i.e. 1973, 2000 and 2008 – there was a positive return at the end of five years.²

However, the time a portfolio takes to recover has depended on the investment type, as the chart below shows.

2. Spread your risk across securities

Spreading your risk across different stocks, bonds or other financial instruments is also crucial. Otherwise known as diversification, this avoids excessive exposure to any single investment. The chart below shows how increasing the number of US equities from the S&P 500 Index held in a portfolio cuts the volatility (or standard deviation) of a portfolio. ETFs are an effective tool for achieving diversification.

3. Spread your risk internationally

Similarly, investing internationally helps to protect portfolios from risks tied to single countries, which can suffer from economic or political problems, as well as currency depreciation. This mitigates geopolitical and country risks—a prudent course of action as the United States now accounts for over 70% of the MSCI World Index.

To give an idea of why it’s important to diversify across countries, Japan accounted for more than 40% of the MSCI World Index at its peak in the 1980s, just before it fell into a lengthy slump.

4. Spread your risk across asset classes

A well-diversified portfolio generally has a core allocation in equities and bonds, often with a 60/40 split, as these two asset classes have historically tended to move in opposite directions to each other. You can diversify further with other asset classes like real estate and commodities.

The chart below illustrates that a multi-asset portfolio typically experiences lower volatility compared to portfolios focused on a single asset class. ETFs tracking individual asset classes exhibit significantly higher daily return fluctuations and volatility, as well as more pronounced extreme values, when contrasted with the steadier performance of multi-asset ETFs. Please note that past returns are no indication for future returns.

Please note that investing in these funds carries various risks. Equity strategies involve foreign currency risk and equity market risk. Real estate strategies are subject to foreign currency risk, industry or sector concentration risk, and liquidity risk. Government and corporate bond strategies carry credit risk, interest rate risk, and liquidity risk. Multi-asset ETFs are exposed to credit risk, interest rate risk, and equity market risk. Before investing, it is crucial to stay informed. For full details on the risks, please refer to the ETFs’ prospectus and Key Information Document (KID), which investors are strongly encouraged to review thoroughly.

ETFs for Christmas?

When it comes to following these smart rules of investing, ETFs are an easy, low-cost way to be patient and diversified.

For example, the VanEck World Equal Weight Screened UCITS ETF aims at being one of the currently most diversified international equity indexes. You get some exposure to US equities, which are 40% of the index, but not the 70% mentioned earlier.

Put simply, following straightforward investment principles, like patience, can support your long-term financial objectives. ETFs for Christmas, anyone?