After the US stocks surge following the Covid pandemic, a period of high inflation and, more recently, rising valuations, it’s understandable investors are rethinking their capital allocations. As they look to rebalance, we believe the key to building long-term returns come from staying invested rather than trying to time the market.
History has shown that compounding grows wealth1, but many investors fall into two common traps:
· Trying to time the market, which is difficult even for professionals2
· Holding excess cash3.
Instead, we suggest the following:
1. Find your balance
Across almost any time horizon or region, balanced portfolios, such as a 60% stock and 40% bond mix or a 60/40 portfolio that also includes alternatives, have historically delivered higher returns than cash, as shown4.
For example, a hypothetical portfolio that also includes alternatives, posted a return of 8.8% in 2025 compared with 4.0% for cash.
2. The hunter and the farmer
Investors and Wall Street as a whole, are often depicted as hunters, relentlessly pursuing and capturing winning trades. In reality, the ideal investor is akin to a farmer, patiently cultivating opportunities over time rather than chasing quick wins.
A farmer builds wealth by working their fields (markets), understanding the weather (market risk), and planting seeds (cash) that grow into crops (assets) for a harvest (returns). This process is repeated season after season, knowing that some years will be better than others, to steadily grow a successful farm. Farmers don’t try to outsmart the weather each day - they plant, tend, rotate, manage, and patiently wait for their harvest. In contrast, a hunter relies on timing, agility, and quick decisions to achieve success.
This farming analogy for investing while well-known, remains powerful. Investors aim to harvest risk premia, which are generally positive over the long term - so we plant, we invest. Sometimes, market risk, like unexpected weather, can damage a crop.
Still, a well-managed, diversified farm may be strong enough to bounce back from a bad season, just as a diversified portfolio can weather market downturns more effectively.
3. Getting invested, staying invested
Today, investors have access to a wide variety of investment options that make it relatively easy to build a diversified portfolio. Given the current economic environment and the potential to harvest long-term returns, we believe investors may consider holding less cash than is typical.
While some parts of the stock market are highly valued, we believe this may guide how investors balance stocks and bonds, rather than prompt them to try to time the market. Although market timing can be tempting, history has shown it rarely works well over the long run.
For instance, imagine an investor with a 60/40 global stock-bond portfolio, who managed to exit the market perfectly at the start of each equity bear market over the past 25 years and reinvested the money within a month of the market bottom.
This investor would have achieved annual returns of 9.1% in AUD terms3, as shown in the chart below. In comparison, a buy-and-hold investor in the same portfolio would have earned 7.1% per year.
If the investor with perfect timing also kept 25% of their portfolio in cash, their annual return drops to 7.7%. And if the market timer missed the ideal exit and entry points by only three months and held 25% in cash, the performance would start to fall behind that of the buy-and-hold investor.
Professional investors recognise how difficult market timing can be. When they do attempt it, they aim to limit the overall impact on the portfolio. As they hedge or gain from their positions, they tend to view the investment as an expression of how well they can be compensated for taking different risks. As such, allocation decisions are being driven by relative risk-reward instead of pure market timing moves.
Conclusion
We believe that trying to time the market or holding cash can hinder long-term portfolio growth. As such, staying invested and letting returns compound has historically been associated with stronger outcomes over time.