There is a paradox at the heart of equity investing. The asset class that has produced the greatest long-term wealth for patient investors is also the one that inflicts the most frequent short-term discomfort. Shares fall, sometimes sharply and without warning. They test conviction in exactly the moments when conviction is hardest to maintain. Over long horizons, however, no other listed asset class has produced comparable real returns. Understanding why both things are true is the foundation of investing well — and it is the first of the principles on which we construct every portfolio.
Why we hold equities
Long-horizon wealth is built by owning productive assets. Equity ownership is the only mechanism through which an investor participates directly in productive enterprise at scale — a claim on the earnings of real businesses that grow, innovate, reinvest, and compound their value over time. When you own shares, you are not holding an abstraction. You are an owner of productive enterprise, entitled to its returns.
This is why our portfolios carry a structural orientation toward listed equities, domestic and global. The word structural matters. The orientation is not a tactical position. It does not move with sentiment, and it is not adjusted in response to market conditions. We do not increase equity exposure because markets feel optimistic, nor reduce it because headlines are alarming. The weighting is calibrated to each client's mandate and horizon, and then it is held — through the cycles, through the noise, through the periods when holding feels least comfortable.
The returns are not delivered smoothly
Over decades, equities have produced the highest real returns of the major asset classes. They deliver those returns in an uneven sequence of strong years, flat years, and sharp declines. The investor who has lived through the first months of 2026 — a 9 per cent fall in the S&P 500, a recovery, and continued volatility — has experienced equity investing exactly as it has always behaved. The discomfort is not a malfunction. It is the price of admission to the returns.
This is also why equities are not the whole of a portfolio. The volatility that a patient investor tolerates over a generational horizon is not appropriate for capital that may be needed in the near term. Genuine diversification, real assets that protect against inflation, and defensive holdings all have their place alongside the equity orientation. The equity weighting is calibrated to the mandate — higher for those with the horizon and temperament to bear it, lower for those who need stability sooner. The orientation is constant; the proportion is not.
Why most investors underperform the assets they own
Here is one of the more sobering findings in the study of investing. The average investor in equity funds tends to earn returns meaningfully below the returns of the funds themselves. The gap is not caused by fees alone. It is caused by behaviour — by buying after markets have risen and selling after they have fallen, by abandoning a strategy at the point of maximum discomfort, by attempting to time entries and exits that cannot be reliably timed.
The equity market does not require an investor to be clever. It requires an investor to remain invested through the periods when remaining invested feels least comfortable. The investor who sold during the depths of the 2026 decline locked in the loss and, in many cases, missed the recovery that followed within weeks. The investor who held took part in the recovery by doing nothing.
In equity investing, how long you stay invested matters more than when you begin. The investor who begins early and remains invested through the cycles captures the compounding that those who wait, or who repeatedly enter and exit, forgo. Returns are made or lost in the structural decision to own productive assets and to hold them — not in the attempt to trade around them.
Knowing yourself as an investor
The appropriate equity allocation is the one an investor can actually hold through a downturn without abandoning it. A theoretically optimal allocation that the investor sells in a panic is worse than a more modest allocation they can maintain. This is why the mandate matters: it sets an equity weighting calibrated to the return required and, equally, to the volatility the investor can tolerate. Knowing yourself as an investor is as important as knowing the assets.
The enduring principle
Over long periods, equities have built wealth for those who tolerate the discomfort of holding them through cycles, and eroded it for those who trade in and out in response to each market movement. The discipline is not complicated to describe. It is simply difficult to practise — and that difficulty is why so few investors capture the returns the asset class has delivered. Portfolio construction is the work of decades, not quarters.
If you would like to discuss the role of equities in your portfolio and whether your current allocation suits your goals and temperament, we welcome the conversation.
Ben Wieland
Partner, Wealth Manager
1300 102 542 | 0423 710 820
ben@egu.au
Sources
David F. Swensen — Unconventional Success: A Fundamental Approach to Personal Investment (Free Press, 2005)
Australian Securities and Investments Commission (ASIC) — MoneySmart: Shares: https://moneysmart.gov.au/how-to-invest/shares
Australian Securities and Investments Commission (ASIC) — MoneySmart: Choose your investments: https://moneysmart.gov.au/how-to-invest/choose-your-investments
Morningstar — Mind the Gap US 2025 (12 August 2025): https://www.morningstar.com/business/insights/research/mind-the-gap-2025
This is general advice. It does not take account of your objectives, financial situation, or needs, and is not a substitute for advice that does. Before acting on anything in it, consider whether it suits your circumstances, and consider the relevant Product Disclosure Statement.
