Patience is defined as “The capacity to accept or tolerate delay, trouble, or suffering without getting angry or upset.” Eighteenth-century philosopher Jean-Jacques Rousseau once said, “Patience is bitter, but its fruit is sweet.”
As is true in many areas in life, investing requires a tremendous amount of patience. Individuals often become increasingly uncomfortable in times of volatility, and inevitably shift their focus from long-term goals to short-term anxiety. A major contributor to this phenomenon is what is referred to as “recency bias.” Recency bias is the tendency to believe that trends and patterns of the recent past will continue in the future.
The financial crisis of 2008 epitomized this thought process for many investors. Some of the most educated, long-term investors became increasingly more skeptical as the early days of the 2008 crisis turned into weeks, and the weeks turned into months. These same investors became so susceptible to the fear caused by the market’s downward spiral that they lost the patience and discipline needed to stay the course.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Who’s your worst enemy?
Benjamin Graham, the father of value investing, once said, “The investor’s chief problem — even his worst enemy — is likely to be himself.” As financial advisers, we play many key roles in the lives of our clients, but one of the most important is helping our clients stay focused on the long-term game plan. All of the work we do in terms of research, allocation, diversification, risk management, cash management, etc., is meaningless if investors lose sight of their long-term investment goals.
As an exercise, think back to a time in your life when you were excited to begin a new challenge. You knew this challenge would not be easy, and that it would probably require a significant amount of sacrifice in the short term. Ultimately, however, it would benefit your life over the long term. Maybe your challenge was to start a fitness program, initiate healthier eating habits, or become a better parent. Whatever the challenge, there were probably a few bumps along the way.
These sorts of life challenges can be comparable to the challenge of investing for your future. Success is dependent upon a certain level of patience. A tremendous amount of discipline and fortitude may be required along the way, but most of all, success requires patience. Patience is the vehicle that allows discipline and dedication to turn into progress.
Bad news can breed irrationals moves
Mark Twain (and possibly several others before him) once said, “I’ve suffered a great many catastrophes in my life. Most of them never happened.” Many investors have a natural tendency to focus so much of their attention on the negative news of the day that it dominates their thoughts. Their short-term focus on negative market reports leads to anxiety, which can then lead to irrational investment decisions.
Heightened investment caution is certainly justified in many situations. We do not advise clients to bury their heads in the sand and ignore their investments. However, to extrapolate the most recent economic events into a future theory can be a mistake. Appropriate risk management requires perspective and balance — especially during times of volatility.
During times of market turmoil, it often seems justified to take some type of immediate, decisive action — just because. But actions based on haste and prognostication often backfire, leaving investors with bitter regret for their swift, but emotional, responses. We may not be able to entirely control our emotions during tough times, but we should try to consistently heed the wisdom our mothers imparted as we were growing up: Patience is a virtue.
Remember …. your mother is always right!
-
Thanksgiving 2024: How Grocery Taxes Impact Your Holiday Food BudgetFood Prices Some families are navigating high food prices influencing what’s on the table this Thanksgiving.
-
9 Year-End Money Moves to Make NowBoost your retirement savings, lower your taxes and get the most out of your health insurance.
-
The Three Financial Questions Every Retiree Asks (or Should)Unless you can answer these three important questions, you may be at risk for the biggest retirement worry there is: Running out of money.
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
-
Here's Why We All Win When Charitable Dollars Go to WomenGiving to charities for women and girls not only has a lasting impact on their lives — it also benefits society as a whole. Here’s how to start investing.
-
For a More Secure Retirement, Build in Some 'Safe Money'To solidify your retirement plan, write it down, reduce your market risk and allocate more safe money into your plan for income.
-
Five Steps to a Mindfully Fearless CareerIf, like many women, you're struggling with imposter syndrome, try developing an athlete's winning mindset. It's as simple as facing one small fear every day.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
