People that succeed financially are patient when times are tough and are disciplined when times are good. Patient people that succeed financially do something that is very difficult; in the face of some provocation or pain or misfortune, they have the ability to stay the course and abide by the behavioral rules that will help them work toward accomplishing their goals. The global economy is cyclical, which means it does not expand forever. There will be times ahead of us that are tough. At some point in time, the global economy may not grow or may actually shrink so much so that it is in a “recession” or maybe even a “depression”. That period of time should be followed by recovery and an economic expansion. Stock markets will peak, move lower, but eventually should recover. This is how it has been, and how it will likely be in our future. The patient person would use the bad times as an opportunity to be a buyer when most others are panicked sellers. If you are in the accumulation phase of your life and adding to your retirement plan, increasing your contributions to your plan when times are bad would probably be a good idea. Instead of falling for the herd’s fearful mentality, the patient investor looks for opportunity to add to their investments when it doesn’t feel right to do so.
At the other extreme, there are times when people feel they can do no wrong with their money. While the disciplined have the wherewithal to stick to the rules that work for the financially successful, the undisciplined do what feels good at the time. When the economy is expanding nicely, it seems everyone is making a good living and spending is not a problem. Stock and housing markets around the world are probably providing a nice return at that time. The XYZ investment someone heard about at a cocktail party is the next biggest get rich quick idea they have to buy the next morning so they can retire the day after. The wealth effect of having home equity also may cause people to act irrationally. People may use a house they live in or multiple houses they own as an enormous ATM machine from which they withdraw tens or hundreds of thousands of dollars to buy other houses, luxury cars or toys. The disciplined person in that environment would continue to do what is appropriate for their circumstances. The disciplined person also remains well balanced in their approach to their assets, and does not take on so much debt that they ran the risk of losing everything when the economy inevitably changes course.
Not letting one’s emotions dictate one’s behavior is the common denominator between the patient and the disciplined. As emotional beings, not letting our fear or greed get the best of us is one of the hardest things we humans can do. Put together a long term strategy and be patient when times are tough, and disciplined when times are good so you can stay on track toward pursuing your financial goals. Placer Summit Financial Groups professionals can help you do all three.
Past performance is no guarantee of future results.
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