Long-Horizon Investing, Part 1: A Ton of Feathers

Nathan DutzmannAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

This is part one of a five-part series that develops an analytical framework for long-term, retirement-oriented investing. The author would like to thank Joe Tomlinson and Michael Finke for their helpful comments on this article series.

Which weighs more?

When I was young, a friend of mine stumped me with the following brain teaser: “Which weighs more, a ton of bricks or a ton of feathers?” The answer, of course, is that they weigh the same amount: one ton! But to the uninitiated, the question is tricky, because our perceptions about bricks and feathers lend themselves to a snap judgment that surely the bricks must be heavier.

With these childhood memories as inspiration, let’s try out a new brain teaser: “Which is worth more, a dollar of stocks or a dollar of U.S. Treasury bonds?”

I would hope the answer to this one is even more obvious: They are both worth one dollar! Yet many smart-sounding but dubious nuggets of received wisdom about stock market returns boil down to an insidious and well-hidden assumption that a dollar of stocks is worth more than a dollar of less-risky investments… especially if you plan on holding them a while.