Why is the best strategy also the toughest to pull off?

Financial Autonomy - Blog
Why is the best strategy also the toughest to pull off?

Accumulating wealth to gain choice is hard. As the well worn saying goes, “if it was easy, everyone would be doing it”.

Why is it so hard though? For over 200 episodes now, plus the weekly GainingCHOICE emails, we’ve explored various ways you can successfully accumulate wealth. Surely it’s a simple matter of just putting those strategies together in a combination that works for you?

But there’s one hurdle that all of us must overcome to achieve success. And it’s a hurdle so easy to trip up on. Accumulating wealth takes time, typically decades. How do we avoid the distractions, the noise all around us, and let the strategies we know work, do their thing?

The challenge of patience

Hopefully we all know that investing and wealth accumulation is a long term game. But it’s one thing to know it, and a completely different thing to actually do it. To succeed at long term investing requires doing nothing for long periods of time, and that’s tough. In most other spheres, your chances of success rise with the more work and effort you put in. If you’re motivated, driven to accumulate wealth, then surely what’s needed is putting more focus on the task, tinkering, changing, it’s a natural inclination. Except it doesn’t work for investing.

The best way to accumulate long term wealth is to let the power of compounding work for you. And it’s not just investing where the power of compounding leads to success. The same can be said for your career, and perhaps also important relationships like those with your spouse and your children.

Success also requires that our goals remain constant, at least broadly so.

Long-term investing doesn’t look difficult from the outside. The basic strategies of investing for growth, progressively adding, being well diversified, and most importantly leaving things alone to do their stuff, looks easy on paper, so why is it so difficult for us all in reality?


The biggest challenge by far is noise. Noise in the sense of news reports and social media posts. There’s a constant need for information to fill our air waves and screens. The entire media industry depends on gaining our attention to grab our focus and then put advertising under our noses. And so we’re constantly bombarded with declarations of the next impending disaster. Most often these declarations are crystal ball gazing, but of course at times they can also be describing real world events. Most recently, we saw share markets fall sharply in March of 2020 when Covid spread throughout the world. We know today that the market drop was fairly short lived and investors who simply did nothing, who maintained their long term approach, were completely unaffected by this drop. But it’s pretty tough to hear about this volatility when it’s happening and to not feel like there must be something that you need to do. It can be easy in the abstract, when creating an investment strategy, to discuss what you would do if the market fell 20 or 30%, and feel confident that you would just leave things alone and ride it out. But in the turmoil of the time, when things are happening and supposed experts are shouting from the rooftops that the world is coming to an end, it’s not so easy to hold the line.

This issue is why I think it’s so good for young people, from teenagers up, to get some investment experience early. Someone in their 20s who went through that COVID market drop and saw it recover will be much more comfortable next time there is some sort of market disruption. Learning to experience volatility at a time when your investment holdings are not too large can really set you up for a successful life time of investing. Sometimes I’ll work with people who have never done any investing, and pretty much just lived paycheck to paycheck, who then inherit a large sum of money. Having never lived through any sort of period of volatility, at the first sign of turmoil, their stress levels can go through the roof. The only real solution is to build a very conservative portfolio that mutes this volatility, but of course that means severely compromising the return potential.

A large part of my role as a financial planner is having conversations with people in these moments of stress and effectively talking them off the ledge. Reminding them about why we’ve implemented the strategy that we have, what it is they were trying to achieve in the long term, and why staying the course is the best way forward.

Perhaps in a perfect world if we had a 10 year time horizon, we’d invest on day one, potentially automate some regular additions along the way, and then not look at it again it until that 10 year point in the future. Some people operate their super funds like that, never even opening the statements. But for most of us, it’s hard to avoid the urge to want to keep an eye on things.

Am I just being stubborn?

Just to complicate matters, how do we differentiate between prudent patience, and misguided stubbornness? An interesting investor trait that I’ve seen plenty, and have worked hard to avoid in my own investing, is the inclination to sell your winners after a good gain, but hold onto your losers, waiting for them to recover so that you don’t suffer the perceived disgrace of incurring a loss. Now selling winners can make sense at times. It is the case generally that markets overshoot both on the upside and the downside so it may well be that one of your winners’ price is unjustifiably high and it makes sense to lock in some gains. The broad outcome of selling winners and retaining losers until they recover however, very often leaves investors with an entire portfolio of losers. And whilst it may be that some recover, many never will, and even for those that do recover, you will have suffered an opportunity cost. Had you sold, accepted the loss, and redeployed that money into other investments, perhaps you might have had a greater gain than waiting around for years simply for the share price to get back to the point at which you purchased, an arbitrary figure with no relevance to anyone but you.

Be flexible to increase your chances of success

One final point to contemplate when thinking about long-term investing and how you might succeed. The more flexibility you have with your definition of long term, the better. Say for instance at 50 years of age you decided that on your 60th birthday you would retire. Locked in, it’s happening no matter what. Then imagine your 60th birthday fell in July of 2008. At the time we were in the middle of the GFC. The Australian share market was down about 30%, but still had another 20% to come, though of course we only know this with hindsight. Now perhaps in shifting to retirement your investments could simply continue, with you living off the investment income that they produce. But if it were the case that upon retirement you’d planned to liquidate some of your savings so as to buy a house down at the beach say, then being locked into such a specific date is likely to be harmful.

Give some thought to how you can make your long-term plans flexible. We talk here about having choice, and I think that’s really the key to establishing your goals. As a personal example, a key part of our financial plan is that I want to have the choice to retire at 60. So we have a savings plan and a superannuation contribution plan to ensure that when I reach that age we will have the assets necessary for me to retire. Now in truth I hope to work until I’m 70, I love my work as a financial planner and want to do it for as long as possible. But I don’t know how I’ll feel closer to the time, and there’s always the chance my or my wife’s health isn’t what we would hope it would be. So I want that choice. But my retirement date certainly isn’t fixed. It can adapt depending on conditions. Maybe when I’m 63 someone comes along and offers to buy my business for a squillion dollars. Well I’ll be in a position to jump on that. So when planning your long-term strategy, I encourage you to incorporate into it flexibility. Your chances of success will be that much greater.




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