The Gift of Investment Patience
16 December 2024
Will you have a bet for Christmas? Or are you more careful? Following simple investment principles, like patience, can help you stay on track toward your goals.
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.
Maximum Time to Recovery (in Years)
Note: Sample periods analyzed starting in January 1990
Source: Morningstar Research, Data as of 31 December 2022.
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.
S&P Portfolio Volatility Based on Number of Constituents
Note: Annualized standard deviation, based on the monthly returns from 31/10/2004 to 31/10/2024 of equally-weighted portfolios created by iteratively adding the largest constituent of the S&P 500 index.
Source: VanEck, Data of October 2024.
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.
Country Weights MSCI World Index
Source: MSCI, Data of October 2024.
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.
Daily Returns Single Asset Class ETFs; Chart 5: Daily Returns Multi-Asset ETFs
Source: VanEck, daily return on selected ETFs from 2014-11-24 to 2024-11-24
The following table underlines the numbers of the chart shows the relative volatility of each asset class in terms of volatility (standard deviation) and the maximum fall (drawdown) recorded.
| Asset Class | Equity | Real Estate | Government Bonds | Corporate Bonds | Conservative Multi-Asset | Balanced Multi-Asset | Growth Multi Asset |
| ETF Fund Ticker | TSWE | TRET | TGBT | TCBT | DTM | NTM | TOF |
| Max drawdown | -8.35% | -14.57% | -1.46% | -2.49% | -3.44% | -5.05% | -6.40% |
| Std Dev | 14.11% | 16.96% | 4.98% | 3.77% | 5.42% | 8.56% | 11.91% |
Source: VanEck, Standard deviation annualized, based on daily return on selected ETFs from 2014-11-24 to 2024-11-24.
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. Alternatively, VanEck’s Multi Asset ETFs spread your investments over several asset classes. You can match them to your risk appetite, with conservative, balanced or growth options.
Put simply, following straightforward investment principles, like patience, can support your long-term financial objectives. ETFs for Christmas, anyone?
1 Statista, 2024.
2 MSCI, 2021.
IMPORTANT INFORMATION
This is a marketing communication. Please refer to the prospectus of the UCITS and to the KID before making any final investment decisions. This information originates from VanEck (Europe) GmbH, which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin).
The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
VanEck Asset Management B.V., the management company of VanEck World Equal Weight Screened UCITS ETF (the "ETF"), a sub-fund of VanEck ETFs N.V., is a UCITS management company incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the AFM, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
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No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck. Investing is subject to risk, including the possible loss of principal. Investors must buy and sell units of the UCITS on the secondary market via a an intermediary (e.g. a broker) and cannot usually be sold directly back to the UCITS. Brokerage fees may incur. The buying price may exceed, or the selling price may be lower than the current net asset value. The indicative net asset value (iNAV) of the UCITS is available on Bloomberg. The Management Company may terminate the marketing of the UCITS in one or more jurisdictions. The summary of the investor rights is available in English at: complaints-procedure.pdf (vaneck.com). For any unfamiliar technical terms, please refer to ETF Glossary | VanEck.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.
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Important Disclosure
This is a marketing communication. Please refer to the prospectus of the UCITS and to the KID before making any final investment decisions.
This information originates from VanEck (Europe) GmbH, which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin).
The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice VanEck (Europe) GmbH, VanEck Switzerland AG, VanEck Securities UK Limited and their associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
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