Patience. How many of us truly practice patience? It is considered a virtue in most cultures; many people demonstrate patience in a variety of life circumstances. There are even axioms extolling the virtues of patience: good things come to those who wait. I recently sent my daughter one of these clever sayings that I came across on the web – this one regarding patience’s cousin, discipline. Discipline is choosing between what you want right now and what you want the most.
Patience and discipline are two powerful words that we throw around but when it comes to putting them into practice, well, that’s a different story for many of us. This blog is about finance, and investing in particular. And if I’ve learned anything in my 35 years in this industry, I’ve learned that these two words are probably the most important components of a successful investment experience. I’ve also learned that where your money is concerned, particularly the emotions that go with it, these are two of the most difficult virtues to practice. Here are the keys to exercising patience and discipline when investing:
- Understand your investment philosophy and strategy before investing any money and be comfortable with it – it should make sense to you and you should be able to explain it at a high level to anyone.
- Accept that you will be tested. Your accounts will drop in value; you will read or hear many times over your investment lifetime that the world is coming to an end.
- Your investment strategy will fall out of favor several times over your lifetime relative to other strategies, just as it should do very well at other times.
- Be globally diversified at all times.
- Never sell except to rebalance or take money you require for income.
- Never invest in something “too good to be true.” Markets work and returns reflect this. If you are pitched something with dramatically higher returns than can easily be found in stock and bond markets, it’s either very high risk or a scam.
Patience and discipline aren’t easy to practice and you will be tested often. If it were easy to make money investing, everyone would be doing it. Most people fail to get the returns they desire because they lack the patience and discipline.