The Urge to Act

Patience - Lao Tzu.jpg

Meditation relies on sitting still, calming your mind, and drifting off into a deep relaxation. The goal is to allow ourselves to feel what’s happening in our body and clear the mind of what causes us stress.

Many medical professionals say that meditation is a great exercise for reducing stress, anxiety, and depression while increasing happiness, peace, and well-being. Sounds great, but one session will not do the trick. It takes time and dedication to see see the results of meditation.

But how do you get started? The first time I tried to meditate I could barely keep focused. Any noise around me had to be investigated which kept me from focusing. This image perfectly explains my first attempt at meditating.

Source: Giphy

Meditation takes time to get used to. Sitting in your chair, listening to someone talk about all peaceful things sounds great, but most beginners have a hard time of staying focused and lose track of what they are doing. An itch gets scratched, a noise gets investigated, and our tranquil mind is now gone. We find an urge to do something even while everything else is telling us to relax.

Similarly, with investing, the patience required to allow your investments to grow takes a lot of practice. It can be hard to put money to work simply to watch it sit there. Or worse, watching your money fall in value shortly after beginning your investment career. The process of compounding wealth takes substantial time, and allowing it to do so is even harder. Allowing yourself to do nothing in volatile periods is one of the hardest aspects of investing.

Focus - Carl Richards.PNG

Behavioral economists have a term called Hyperbolic Discounting. This is a really fancy way to say we prefer immediate gain instead of waiting for a long-term return on our investments.

Makes sense. If someone is going to give you $100 today or $1000 in 5 years, we naturally gravitate towards the short-term benefit of $100.

Today, more than ever, immediate rewards are sought after much more than any long-term benefits. With platforms like Robinhood, Betterment, and other “instant (and sometimes free) trading platforms”, investors can be inundated with short-termism. It has never been an easier time for someone to begin investing, but at the same time, it has never harder to stick with your investments. Like meditation, the best rewards are provided to those who can focus and stick with the process.

As investors, we need to try to understand how the market works and not be tricked into making short-term decisions. One main area of conditioning investors need to feel comfortable with is facing market volatility and down periods in the market. According to Ned Davis Research, the market drops 5% multiple times throughout the year and 20% or more every 3 years or so. AND THAT’S CONSIDERED NORMAL!

Market Declines.png

Source: Ned Davis Research

Market volatility happens and will continue to happen. As I mentioned in my last post, you are compensated for sticking with your investments through these volatile periods. If we jump in/out at every volatile point, we have almost no chance of succeeding with our investment strategies.

Ben Carlson, of Ritholtz Wealth Management, put together some great visuals to explain why to focus on the long-term.

We start with the yearly declines an investor would have faced in any given year while investing in a balanced portfolio:

Portfolio Drawdown 1965 - 2015

Source: A Wealth of Common Sense

Seeing a rather conservative investing strategy drop by 30% multiple times is kind of scary. Better yet, being able to stick with it through for decades is even harder. But if we can focus on the long-term, we see the compounding returns of that portfolio:

Portfolio Growth 1965 - 2015

Source: A Wealth of Common Sense

And this is where the benefit of investing lies. Being able to consistently save money and keep your investment strategy simple will do more your wealth than investors can imagine. The media’s focus on short-termism and the constant hype about trading, do little to nothing to benefit investors. Focusing on your personal balance sheet and allowing your investments time to grow is the best way to successfully invest for the future.

Please ignore typo’s, I will be editing grammar as I go!
Sources: Giphy, Ned Davis Research, A Wealth of Common Sense
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