Long-Term Investing and a Small Allocation to Venture Capital

In financial markets, when someone promises you “extraordinary returns,” the truth is usually one of three things: First, the investment is extremely risky. Second, this person really has discovered an opportunity that every other skilled investor has missed, and is kind enough to share it with you. Third, this person is lying. Very often, the truth is the third. In economists’ view, most people can earn only average returns in capital markets. The rational route to building wealth through investing is therefore to buy a broad-market index fund and hold it for the long term. In essence, that means earning the market’s average return. Economist Charles Wheelan says: “Where will the Dow Jones close tomorrow? I do not know. What about next year? I do not know. In five years? Probably higher than today, but I am not very sure. In 25 years? I am almost certain it will be significantly higher than today.” Growing wealth therefore requires a long-term approach, and capital markets are no exception. Any wealth-building strategy must follow the basic principles of economics. Those tantalizing stories of “getting rich overnight” are, through an economic lens, merely illogical outliers. ---- Robin: 1. Do not believe someone will give you a hot stock tip and that following it will make you rich. 2. Develop your own ability to think and judge independently. 3. Commit to the long term, and make time your friend. 4. Investing is also like panning for gold: some places are rich in gold dust, while others have none. If you can use point 2 to identify early where the most gold lies, invest according to point 3. Otherwise, do not expect something for nothing; stick to index investing. ---- The truly wealthy can also allocate a little money—say, 3%—to investments at the frontier. Losing it would hurt, but would not do serious damage. If an investment succeeds, it could become something that changes the world, and you would have taken part in that process. A venture capital fund is one option to consider. Ideally, its management team has navigated cycles over several decades and continued to evolve with the times. Through accumulated time and experience, it can recognize what lies beneath the surface, identify early where capital will gather in the future, and position itself ahead of the curve. And because an investment in a VC fund lasts ten years, it forces you to make time your friend, move forward alongside growing companies, and seek opportunities to change the world.