Corolab: Long-term investing

Overview

Of all the investment needs in our series of guides, investing for the long term is possibly the hardest. This is because true long-term investing requires you to stretch your investment horizon beyond those periods that feel more natural to comprehend (last year, this year, next year) towards an investment goal that may be decades in the future. It also means that you typically invest in growth assets (such as equities), where volatility (price swings) is higher than in other asset classes, making it harder to remain invested during market sell-offs.

In this guide, we explain why long-term investing is so hard, but also why it rewards those who persevere, and why we remain committed to investing with a truly long-term lens on behalf of our investors.

What makes long-term investing so hard?

1. It's difficult to think in decades

Based on historical industry cash flow patterns, South African investors, on average, tend to hold growth funds for less than a decade. And yet, if you start investing in your mid-20s, your real investment horizon (for your own lifespan) could stretch up to seven decades. This comprises your retirement capital build-up phase, and a potential three decades that you need to continue investing in retirement (if you retire in your early 60s). For some, that horizon stretches even further, investing beyond their own needs for the benefit of the next generation.

The gap between your true long-term investment horizon and the much shorter one you act on is where two familiar biases take over:

• Loss aversion: a market or fund dip feels worse than an equivalent gain feels good; and
• Recency: you assume that today or last year's trend will keep going.

Thinking in decades rather than years is one of the biggest mindset shifts a long-term investor can make. When your goal is multiple decades away, you can treat short-term market swings as noise rather than as a signal to change course. And as you lengthen your time horizon, the range of possible outcomes narrows, and the risk of a negative real return falls substantially. Knowing that makes it easier to stay invested through the inevitable ups and downs, and that discipline (to remain focused on the long term) is often where much of the ultimate reward comes from.

2. Volatility is the culprit

Equities are volatile. Within any given year, the asset class can swing from steep declines to strong rallies, sometimes back-to-back, which can be unsettling if you check your investments too often.

Consider the following analysis of the South African equity market, using the FTSE/JSE All Share Index (ALSI) as measurement.

If you only look at the blue bars (which represent the calendar year returns for the ALSI), you may conclude that staying the course would have been easy. The negative years were remarkably few (4 out of 25 years), and the positive years overwhelmingly positive. But in order to achieve the 13.6% a year return from equities over this time, investors in the ALSI would have had to endure an intra-year drawdown of -15% on average.

Volatility is the short-term price you pay for the higher expected long-term return that equities offer.

3. Trying to time the market is a poor strategy

The problem with volatility is how investors behave at the more extreme points of market or fund drawdowns. This is when investors are most tempted to switch to cash (loss aversion bias) or to derisk into funds with lower levels of equity exposure (recency bias, assuming the trend will continue).

What investors end up missing out on is clear from the table below. Those who exited markets at the troughs of major crises over the last 25 years, would have missed out on the attractive subsequent returns, and the timing of which is near impossible to get right.

The lesson: to capture the long-run returns equities offer, you have to be willing and able to sit through the volatility and inevitable sharp declines along the way.

4. Individuals' time horizons are shrinking and the market structure has changed

Adult attention spans have shrunk sharply in the screen era. According to Dr. Gloria Mark's work, screen-based focus has fallen to less than 50 seconds. The investing parallel is hard to miss: the average holding period for US shares has collapsed from roughly five to eight years in the 1960s/70s to less than half a year today. This means many "investors" are effectively only renting exposure, hoping to flip it to another buyer at a higher price in the very short term, rather than investing into a company and giving it time for the economics of that business to compound over your holding period.

At the same time, the market structure has shifted, as a growing share of daily market activity is driven by passive flows, algorithms, and short-term trading signals, rather than by investors assessing the long-term value of individual companies.

Rapid advances in artificial intelligence and technology are amplifying this dynamic further, generating fresh waves of excitement and anxiety that can move prices well ahead of any real change in a business' underlying worth.

The result is that markets feel noisier than ever, making it even harder for investors to stay the course.

What makes long-term investing so rewarding?

1. The secret sauce is time, for compounding starts slowly, but its real magic emerges after long periods of patient investing. The longer you wait, the bigger the gains.

In the first section of this guide, we explained why it's hard to think in decades. This section focuses on why that shift is worth making: compounding is exponential, not linear, so most of its power only shows up if you give it enough time.

The following graph demonstrates this power. Over the first decade or two, a 6% return and a 12% return look deceptively similar. It's only two or three decades in that the gap opens up dramatically. A difference in return that looked small early on compounds into a materially different, retirement-changing outcome.

It's this same effect that explains why equities have outpaced other asset classes so decisively over the long run as we will explain in the following paragraphs.

2. You need sufficient exposure to equities

If your investments only keep up with inflation (rising prices), you will not be building real wealth – you will simply be breaking even. Over decades, inflation quietly but relentlessly erodes the purchasing power of your savings.

But history is clear on one point: over long periods, equities have done the heavy lifting in growing investors' wealth. In South Africa, equities have delivered significantly higher returns than bonds or cash after inflation over many decades. Bonds have tended to offer only modest real returns, with cash close to zero. 

This pattern is not unique to South African markets, globally equities consistently outperform by a similar margin.

3. Growth-oriented multi-asset funds offer a compelling middle ground

Long-term investors who want to achieve inflation-beating returns (as covered in the prior section), but prefer a journey where the volatility and extremes of pure equity investing are to some extent smoothed out, can consider a growth-oriented multi-asset fund. These funds are biased towards equities (to different degrees depending on your long-term goal), but also invest in bonds, listed property and cash, both locally and offshore.

• Coronation Balanced Plus, our flagship fund aimed at building up long-term retirement capital (which means it complies with Regulation 28), aims to maximise long-term returns and can invest up to 75% in equities.
• In turn, Coronation Market Plus, which has the flexibility to have more exposure to shares than Balanced Plus, is ideal for wealth builders not bound by retirement fund regulations.

Both funds are actively managed by our global investment team, who allocate to the most compelling opportunities across the various asset classes worldwide, shifting exposure on your behalf as valuations change.

Over the long term, this combination of growth assets, diversification, and active asset allocation has added meaningful value for investors: dampening volatility enough to help you stay invested, while still capturing the long-term real returns that equity markets offer.

This outcome is highlighted in the graph below. It maps the return of Coronation Balanced Plus since inception (after fees) against the return of each underlying building block. Despite being limited to a maximum of 75% in equities, the fund has returned 13.4% a year (after fees), ahead of every underlying asset class it holds, including both local and global equities. The result comes from outperformance within each asset class, combined with thoughtful allocation between them over time, delivering more than any individual part, with a smoother and more tolerable ride than a pure equity fund.

That discipline compounds over time. Since Coronation Balanced Plus launched in April 1996, an investment of R100 000 would have grown 46 times over by 31 July 2026, compared with 32 times for the average fund in its category, an annualised outperformance of 1.4%. It's a small number in any single year, but three decades of compounding turned it into a materially different outcome for those who stayed invested.

4. Even more so when you add a tax-advantaged layer to it

That discipline of active allocation and instrument selection compounds even further inside the right account. Long-term money usually falls into one of two pools: retirement savings, held in a pension, provident fund, or retirement annuity, which you generally cannot touch before retirement (a further mechanism to keep investors committed over multiple decades), and discretionary savings, money you choose to invest for other long-term goals with more flexibility.

A unit trust is already reasonably tax-efficient if you stay invested in the same fund for your full time horizon, but holding that same fund inside the right tax wrapper (a tax-free investment account or retirement annuity) builds on that advantage.

• For retirement savings, a retirement annuity lets you deduct contributions from tax up to 27.5% of your income (capped at R430,000 a year), and no tax is payable on interest, dividends or capital gains while invested, only normal income tax on the pension you eventually draw. The cost is liquidity: your capital is generally locked in until age 55.
• For discretionary savings, a tax-free investment offers similar tax-free growth without that lock-in, but contributions are capped at R46,000 a year and R500,000 over your lifetime. Contributions are also not tax-deductible as is the case with an RA (up to stated limits).

Read more about Coronation's Retirement Annuity and Tax-free Investment accounts along with their suitable underlying fund options (Coronation Balanced Plus for retirement savings and Coronation Market Plus for tax-free savings), and how they help to amplify the impact of tax-free growth.

Why we keep going at it

So far, this guide has explained why long-term investing is as rewarding as it is challenging. It demands patience when the headlines say otherwise, and the discipline to stay invested when sitting on the sidelines feels safer.

As your long-term investment partner, we cannot remove discomfort from the process, but we can reaffirm our commitment to keep investing with a long-term lens on your behalf.

That means having the fortitude to pursue opportunities where our research differs from consensus, even when it results in our portfolios looking out of step with the market or peers. It is a common by-product of how we invest, and it is exactly what allows us to outperform and compound your capital responsibly over decades.

What does this look like in practice?

Our tried-and-tested philosophy and approach allow us to treat every major or minor market correction as a chance to respond to the opportunity set that opens up. In our multi-asset funds, this typically means adjusting our asset allocation by leaning into lower-priced equities that offer higher prospective returns. Within equities, these episodes of panic often enable us to improve portfolio quality by reducing positions in businesses in favour of higher-quality businesses that have sold off.

Our aim is always to build robust portfolios: diversified across enough independent ideas that no single narrative, macroeconomic scenario, or market event can define your long-term outcome. We give our investments time to work while constantly interrogating our theses and keeping an open mind, so that we can act on your behalf when the facts change.

The biggest lever and differentiator in today’s markets, we believe, is investing with a truly long time horizon. As our chief investment officer Karl Leinberger often says: “It's time in the markets, not timing the markets, that will give you those outsized returns that exponential growth delivers over decades."

Conclusion

Markets will move up and down, and some years will feel uncomfortable. The goal of long-term investing is not to avoid every bump in the road; it is to stay on the road long enough, in an appropriate portfolio with sufficient exposure to growth assets and managed with a true long-term lens, for compounding to do its work.

To find a suitable long-term fund or tax-advantaged investment option visit our website for more information, or speak to your financial adviser.

Disclaimer