INVESTING 101
Lesson 3: Patience is a Virtue
Doing less with your investments could build more wealth
Patience is a virtue. Did anyone else’s parents say that repeatedly? Mine did. Alongside Lesson 2 about time, patience is another key philosophical pillar any good investor needs. Patience throughout your investing life will help you to realize your financial future.
What do I mean by patience? Be patient with your investments. Be patient when things are bad and when things are good. Investing is not guaranteed to make you money, especially in the short term, but having the patience to withstand tougher times when the stock market fluctuates will put you in a better place. All too often I hear stories about why people withdrew their investments, and most of them go like this:
“I got scared that I’d lose it”
“I thought I could time the market”
These stories I hear are painful to me because I wish there was a voice in their heads that said: “don’t do it, just leave it alone.”
A Picture Tells a Thousand Words
During my Investing 101 series I promise to keep investment speak and charts to a minimum, but I can’t resist — pictures tell a thousand words. This one shows you the importance of patience in investing.
In short, if you invest and then “forget” your log in details you’d be better off than following your investments and removing money when things get bad. Generally, human bias tells us that losses are more impactful (loss aversion), and when you see investment losses you’ll be inclined to take your money out because the pain of seeing more losses could be too much. Don’t! If you do and then decide 3 months later now is a good time to reinvest, you’ve potentially missed 3 months of the markets going up in your favour.
For those skeptics out there, I didn’t just take a pen and draw two lines to prove my point. This chart is actually Facebook’s stock price change from July 2016 to June 2019. The green line represents having patience and leaving your investment alone. The yellow line is having no patience and getting worried every time the price went down, but missing out on the subsequent increase immediately afterward. I chose Facebook by random, but if I choose any stock the result would be the same more often than not.
Don’t miss out because you got worried — or even worse you thought you could beat the tens of thousands of investment professionals doing this day in, day out. Most of those thousands of professionals don’t even beat the stock market. To beat the stock market means to achieve higher gains with your investments than if you had invested in the stock market index (such as the S&P 500 Index).
Get Rich Quick Stories Are The Exception, Not The Rule
My principles to investing are for the long term, which I firmly believe is the more robust way to build wealth over a lifetime. The stories you read online about someone who got rich quick through investing, those are the exceptions and not the rule. It may be tempting to do the same thing, but I want you to try really hard to ignore those urges and impulses and stick to the tried and true way to good investing — steady, long term, goals-based investing.
So be patient — please. The more you look at your investment account/balance, the more you may be tempted to make a move. Avoid that by only looking at it every few months. That way you keep your worst enemy at bay — you.
If you’ve been following my Investing 101 series you will already have some great tools on how to be successful with your investing. Lesson 1 taught us that just by investing you’ve already made a huge leap forward. Lesson 2 showed us that the more time you have to invest over a longer time period the more wealth you’ll build. The next lesson, Lesson 4: Goals-based Investing, gets you to think about the financial goals you want to achieve and how investing fits in.
And that’s a wrap. Thank you for reading!
