ICYMI: Super Bowl 2017 was an epic battle that ended with Brady and the Patriots winning the game in overtime, but boy did the Falcons put up a fight! They had us on the edge of our seats.
What struck us, money nerds, as fascinating was the exponential growth of the Patriots’ points in the second half (or more specifically, the 4th quarter). It reminded us that, as with investing, what happens in the beginning and the middle doesn’t necessarily reflect what will happen at the end.
The thing about investing is that, when done properly, it’s extremely unsexy and not very exciting at all. Most of the action happens at the end.
THAT’S NOT INVESTING, THAT’S GAMBLING
Thanks to T.V. and movies, the term investing conjures up images of guys in suits trading stocks on the floor of the exchange. There’s noise, there’s excitement, there’s big wins and there’s big losses. And it seems to require a bit of luck.
Most people think that when they are ready to invest, it will consist of them buying stocks of companies they believe in. As we talked about in our post “Why You Should Never Buy Stocks Again“, buying individual stocks is a very old-school (not to mention, risky) way to invest.
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.
— Paul Samuelson
WHEN CAN I EXPECT TO MAKE MONEY?
Do not expect your investments to do anything in the early years. The real growth happens later. The reason for this takes us back to one of the earliest principles of proper investing: compounding. Compounding is when your money makes money.
Think about it this way, if invested in a diversified portfolio, you investments should double every 8-10 years. Consider this one investing period.
In period one, $10,000 would become $20,000, in period two $20,000 would become $40,000, in period three, $40,000 would become $80,000 and so on. No matter what the amount is, it takes the same amount of time to double – and the doublings that count the most, happen at the end.
DON’T MESS WITH THE GAME-PLAN
Once you create an investment strategy, stick to it. Countless studies show that the #1 mistake individual investors’ make is letting their emotions get involved in their investing decisions (“my grandfather bought this stock for me”, “my mom worked for that company”, “I’m not seeing the returns I expected”, etc.). All the information out there shows us that we CAN NOT predict the future. All we know is that the market goes up over time. So once you create a strategy, stick to the plan and don’t watch your investments too closely or you will be very tempted to try to out-smart the market. More pitfalls to watch out for here.
THE SECRET TO INVESTING
The key to successful investing is patience. As we say at Stash, “buy right and sit tight”. DO NOT deviate from the game plan or you’ll miss all the action.