Why the best investors think in decades

Great investors recognise that building wealth starts with understanding the power of time. They think in decades, not quarters.

Take Warren Buffett, who made almost all his wealth after he turned 50. Buffett didn’t build his US$150 billion fortune on trending ideas he heard from his neighbours. Buffett built his wealth by doing deep research and analysis on the companies he wanted to invest in and then harnessed the full potential of compound interest.

Similarly, legendary fund manager Peter Lynch would likely not have made a 29.2% annualised return for 13 years if he had abandoned his strategy during a market dip. Lynch built his wealth by investing in what he knew and having an ultra-long time horizon (20 years or more).

For Australian investors eager to fast-track their wealth-building journey, having the patience to execute all this can feel challenging. But with the help of a few strategies and some self-discipline, investors have the opportunity to turn a small starting balance into significant wealth.

Why thinking in decades works

Consider an investor who puts $10,000 into a diversified portfolio returning 9% annually. After five years, they would have around $15,000. After 20 years, that would become $56,000. After 40 years, over $314,000. Note, all return figures are hypothetical and before fees, taxes and other considerations.

Even without any additional capital, the same initial investment has been given the time it needs to compound. Compound returns start slowly but accelerate dramatically over time. The first decade builds the foundation. The second and third are when real wealth creation happens.

Compounding also helps explain a surprising fact about Buffett’s wealth, and why it only surged in his later decades. Not everyone may know that he didn’t become a billionaire until age 56 and that he accumulated 99% of his net worth after turning 50.

But perhaps the most powerful advantage of thinking in decades is how it puts volatility in perspective. Over weeks or months, markets can swing wildly. The ASX 200 can drop 10% one month and surge 8% the next. For an example of this, look at the market on a 12-month time horizon.

But zoom that same chart out to a five-year time horizon or longer and the falls suddenly look significantly smaller in context. Since 1900, the Australian share market has delivered positive returns in roughly 70% of all years. The longer the time horizon, the more short-term fluctuations become noise in an upward trajectory.

This shift in perspective can change investor psychology. A 15% market correction becomes a buying opportunity rather than a catastrophe; the fear that drives panic selling loses its power when someone knows they won’t need the money for 20 or 30 years.

It is also worth noting that most Australians already have practice with long-term investing, even if they don’t realise it. Through compulsory superannuation, they’re investing for decades by default, often 30 or 40 years before accessing their savings. That built-in time horizon helps smooth out short-term volatility and rewards those who stay invested through market cycles.

For investors outside super, the same principles apply. The longer the time horizon, the more a person can see through short-term market volatility.

So how can investors build the habits that make long-term thinking second nature? These five strategies may help.

1. Start with a plan

Every investor needs to know what they want to achieve: their goals, time horizon, risk tolerance and asset allocation. Writing it down makes it real. Some people even share their plan with their partner, friend or family member for accountability.

Betashares spoke to an investor who shared his plan with his wife. Today, he has a portfolio worth over $1.5 million.

2. Plan and invest for a longer life

Financial adviser Charlie Viola takes this thinking even further. He and his clients often plan with a 50-year time horizon in mind. While that might sound daunting, Viola and his clients may be on to something. According to the Australian Bureau of Statistics, life expectancy is 81.1 years for men and 85.1 years for women – both some five years higher than 30 years ago. Instead of focusing on daily market movements, long-term investors can focus on building portfolios that meet goals decades into the future.

3. Stay the course

Creating a plan is only half the battle. The real test comes when markets turn volatile.

Given a 10% correction occurs roughly once every 19 months, a solid plan can prevent panic selling and rash decision making. In March 2020, the ASX 200 fell 35% following the pandemic outbreak. But investors with at least 10-year horizons who had adequate cash reserves could stay the course.

4. Treat volatility as opportunity

Downturns can be unsettling, but they can also present opportunities.

Over the past decade, the S&P/ASX 200 has delivered an annualised total return of nearly 10% per year. With a disciplined plan, investors can use cash to buy quality assets at lower prices during market downturns.

5. Avoid the short-term cash trap

While some cash is worth holding, hoarding large amounts comes with hidden costs.

Australian inflation has averaged close to the RBA’s 2–3% target over the past 30 years, though it has often fallen below or above this range, meaning the nominal returns from term deposits have frequently translated into negative real returns. Excessive cash also slows compounding – one of the most powerful forces in wealth creation.

The long-term mindset pays off

Warren Buffett once said, “the stock market is designed to transfer money from the active to the patient.”

Everyone’s superannuation balance proves this on a daily basis. Workers who started contributing in their 20s and have continued to do so will have built substantial wealth by the time they are 60. Those who tried to time markets typically have not.

These strategies may help ensure an investor’s journey becomes a smoother one – thanks to a solid plan, a long-term horizon, the discipline to treat volatility as an opportunity and the knowledge that cash is not always king.