Invest with your kids in mind. It helps you play the long term-game

SWEAT YOUR ASSETS | Asian Kid Riding a Bicycle

Investing with a short-term mindset does not help. It is actually one of those things NOT to do for a couple of reasons:

  • when you invest short term, you tend to “trade”, not to invest! You ultimately try to speculate over gurus’ secrets, short-term trends, gut feelings or exotic formulas. On this topic, check out my article on the difference between investing, speculating and gambling.
  • when you invest short-term, you are subject to the current volatility of the market. You are unable to zoom out, and take the necessary distance to analyse what is going on. You might feel trapped. You might feel the need to take action and “do something”. You might consider selling or buying something, based on what makes sense at that moment. Guess what? Your options will be limited, your analysis will be short-sited and largely emotional. What is worst, you will miss out on one of the major leverages of an investor: time! As Charlie Munger once put it: “the big money is not in the buying or selling but in the waiting”.

Why? well, as long as you have bought quality assets (ideally, through a well-diversified index fund), the longer you stay invested, the longer you keep the underlying businesses growing, while – from a pure investment standpoint – you just let the compound interest do its work!

Going back to the golden rule, long-term investing (aka “time in the market”) is a wise and efficient approach. The longer you zoom out, the easier it will be to stay the course. I read several ideas and formulas on how to calculate how long you should stay invested, based on your retirement goals and age. One point is clear: investment decisions are personal. Every decision must be taken based on your particular circumstances and values.

However, there will be moments in your financial journey when you will struggle to find the motivation to control your spending and invest your savings for your future self.  It is human. After all, don’t you deserve to “enjoy” your savings now? Do you truly believe your future self will need and appreciate all your present efforts? Aren’t you saving and investing too much?  Along these lines I found a helpful comment to such legitimate doubts in a recent Financial Samurai‘s article:

“After I became a father, I found it easier to invest for the long term because now I was no longer just investing for myself. During a correction, I always imagine having a conversation with my kids 25 years from now. I will reminisce about the good old days and they will tell me how cheap stocks, real estate, and other assets were. So I figure, given I have the opportunity to invest for them today, I might as well do so. Even if you don’t have kids, you can pretend to have a conversation with your future kids, nieces, or nephews. Once you start investing for someone else, you will feel more motivated to keep on going”.

This idea of investing for someone else builds a powerful mindset and strong will to keep the course, no matter what! I recall it was one of the secrets in the performance of Yale’s endowment managed by David Swensen. You can check my article on it: the best investment portfolio|Davind Swensen. By managing the portfolio of an institution with centuries of history and no short-term goals, he was able to build a unique long-term investment model.

In a nutshell, you might invest for yourself (lifestyle), your family, your community or future generations (impact). Just remember the investment basics, and build a clear long-term mindset. Keep it real, and Sweat Your Assets!

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