By Tony Kaye, Senior Personal Finance Writer, Vanguard Australia
Elon Musk, the 49-year-old founder of U.S.-listed electric vehicle maker Tesla, generated global headlines once again last week when he achieved the status as the world's richest person.
As Tesla's share price continued to surge, Musk's personal wealth surged along with it to a staggering $250 billion, eclipsing that of Amazon founder Jeff Bezos ($234 billion).
Yet, in reality, Musk's "overnight" wealth milestone was a success story a good two decades in the making.
It stems back to the launch of Tesla back in the early 2000s, the company's progressive growth to become the biggest automotive group by market value in the world (Musk owns 20 per cent), and to windfall gains he has achieved previously from selling well-known businesses, such as PayPal to eBay in 2002 for US$1.5 billion.
That's really the key financial lesson for 2021 and beyond, because history shows us that overnight investment success rarely happens.
Starting up a business venture, and turning it into a profitable enterprise (if that ever occurs), can take many years.
It's the same with building investment wealth. It's invariably a very long-term, disciplined process. In fact, the keyword here is discipline.
In 2020, for example, many investors were treated to a rollercoaster ride as the impact of COVID-19 and other events saw global financial markets plunge from record highs to decade lows in just days. Personal wealth levels fell sharply with them.
But, by the end of 2020, markets had mostly recovered – and the U.S. market had reached a new record high – restoring and even increasing the investment portfolio balances of many investors.
Those that had stayed on the early 2020 investment terror ride, so to speak, were relatively unscathed compared to those that opted to jump off.
Predicting how markets will behave and perform over the short term is impossible, as we witnessed last year.
Our recently released Vanguard Economic and Market Outlook report paints a mixed picture for global economic growth in 2021, which reflects the ongoing uncertainty around health outcomes linked to the virus.
However, focusing on the longer-term investment outlook has more relevance in the context of portfolio construction and expected returns.
Vanguard's financial modelling projects that global equity returns will be in the 5 per cent to 7 per cent over the next decade. Australian equity returns are projected to be in the 5.5 per cent to 7.5 per cent ranges over the same time frame.
Meanwhile, low interest rates will remain a feature in 2021, and we expect bond portfolios of all types and maturities will earn yield returns close to current levels for quite some time.
Hoping for, or even expecting quick investment gains and "overnight" wealth success in 2021, is an endeavour best left to speculators with a high-risk tolerance.
On the other hand, taking the safer investment road makes better sense, as it's easy to see where that's come from and is likely to go.
While past investment returns cannot be used to predict the future, they are a useful roadmap.
Vanguard's 2020 annual index chart shows that a $10,000 investment made into Australian shares in 1990 would have achieved an 8.9 per cent total return per annum over 30 years, with the reinvestment of all distributions, and grown to $130,457 by 30 June 2020.
Over the same period and using the same strategy, a $10,000 investment into the broad U.S. share market would have delivered a 10.3 per cent per annum return and worth $186,799.
The 2021 Vanguard Index Chart will be released later this year, and is likely to show a continuation of the trend – that is, that returns from most asset classes increase steadily over time based around a strategy of making regular investments and through the power of compounding returns.
The interactive Vanguard Index Chart can be accessed by clicking here, and can be used to track the performances of different assets all the way back to 1970.
At the start of a new calendar year, it's customary to make resolutions and to look ahead to better times.
On an investment level however, there is no visible line in the sand. Apart from a short pause due to public holidays, financial markets continue uninterrupted.
Investment strategies shouldn't necessarily change either, unless there is very good reason.
Whatever 2021 holds, the best pathway is to stick to your strategy. It's fine to review to it, and to make adjustments, but having a strategy based around your longer-term investment goals is essential.
Don't count on rapid gains, and always expect some market volatility. Stay focused on your end game, not current events, and maintain financial discipline.
They are among the key investment principles that will help you achieve investment success in 2021 and into the future.
Join more than 50,000 fellow investors to learn about investment and personal finance in our free weekly newsletter.