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A competitor reported to me the vehement unhappiness voiced by the participants of a retirement plan. The participants
had been pleased until this year when the plan's performance lagged the market. My peer was shocked and dismayed. As a
market professional, she knows the variability of returns is to be expected. We surmised that some newer or younger
investors may assume that straight up is the only way to go. Patience is a crucial component of investment success.
However, these clients lacked patience, which takes a long time to develop, sometimes a lifetime.
There are three major events when building assets over a lifetime. Initially,
the value of your portfolio goes up based on how much you choose to save. Since your balances are small, investment
returns are dwarfed by the contributions to the portfolio.
Then one day you realize that the portfolio is earning as much as you are saving or
contributing. This is probably why the retirement plan participants mentioned by my colleague are upset. Just when
investment performance becomes important, their results decline.
The next major event is the year that investment returns exceed your earnings from employment!
Most likely it is in an exceptional market, but investors sit up, take note, and start thinking about retirement.
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Finally, the last major event is retirement. You have been investing
long enough to trust that your retirement savings can support you in a style that is acceptable (and
for some, in a grand style!) You have patience and trust that you will make enough money to live on for
the rest of your lifetime.
We believe patience is the key to good returns. Since some investors are
speculating on the 'dot-coms', it may seem to be a good idea to break away and take this "easy" road.
But losing patience causes you to go down a path of endless circles. Reviewing the history of investing shows
there is always a short-term fad that makes a few people wealthy and frustrates the majority. Good returns
that compound over time can be wiped out by one spectacular mistake.
Patience means taking time and ignoring the short term, letting days, months,
and even years, go by. As an experienced investors' temperament changes, he or she trusts the power of compounding
returns over time.
Securities offered
through Harbour Investments, Inc. Not
FDIC insured. May involve loss of principal. No Bank
guarantee. |
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