Too often, investors are preoccupied with the near term. That can lead to misjudgments, like recency bias, which assigns undue importance to current events. Obsessing over the near term may also obscure arising investment themes. And it can result in an underestimation of the fundamentals that anchor asset prices over time.
When it comes to wealth enhancement, the longer run is decisive. Many studies have shown that the strategic asset allocation decision, and adherence to it, determines the lion’s share of a portfolio returns and risk over time.
It therefore makes sense to step back from current conditions and assess the medium-term outlook for growth, earnings, interest rates and valuations, and to consider secular forces likely to produce solid investment returns over time.
Read more: Key themes shaping future returns | Franklin Templeton