"When you’re young, you don’t really know quite what you’re aiming at. You act on impulse, which is very important and valuable. But you’re kind of swimming in a blind sea. When you get older, you have more of a sense of direction." – Sinead O’Connor
Earlier this week, as we were sitting in our sukkah, one of our sons said: “School is a waste of time. I have a method to get rich in a casino. There is a strategy that I watched on YouTube, and I know that I can make it big playing roulette and blackjack.”
He was going on and on about it, and I was getting increasingly frustrated. Then I reminded him that on our summer vacation, I had taken him to a casino, and while we had broken even, he had lost all the money I gave him to play with. He answered that he had fine-tuned his strategy since then, when he hadn’t been serious.
Maybe he should turn off YouTube and start reading Scientific American.
In an article about guaranteed winning gambling strategies, Jack Murtagh writes in that publication: “Beneath the varnish of flashing lights and free cocktails, casinos stand on a bedrock of mathematics, engineered to slowly bleed their patrons of cash. For years, mathematically inclined minds have tried to turn the tables by harnessing their knowledge of probability and game theory to exploit weaknesses in a rigged system.
An amusing example played out when the American Physical Society held a conference in Las Vegas in 1986, and a local newspaper reportedly ran the headline Physicists in Town, Lowest Casino Take Ever. The story goes that the physicists knew the optimal strategy to outwit any casino game: ‘Don’t play.’”
Impatience is not financially smart
This week I had a swimming lesson. I began taking lessons a few weeks ago, and it’s not easy learning a new way to swim when you are not so young anymore.
We are a group of five to six, and I think I may be one of the younger students. One of the participants is actually someone I played softball against for two decades. He was known to be a slugger and a beer drinker; now he’s retired and, along with his yoga teaching wife, is relearning swimming.
It’s a very technical approach to swimming, and while it’s a slow process, I can safely say we have all improved over our three lessons. Practicing over and over again, we’ve all made tremendous gains.
Just as in swimming, building wealth takes time and patience.
In an article on this issue, Bonsai Smart Wealth writes: “Impatience can lead to devastating financial outcomes. When investors focus too much on short-term gains, they often make rash decisions that can undermine their long-term financial goals. Research from Dalbar Inc., which analyzes investor behavior, has consistently found that individual investors significantly underperform in the market. Over the past 30 years, while the S&P 500 has returned an average of 10.7% annually, the average investor has earned only 7.7%. The gap is largely attributed to bad timing – buying high and selling low – driven by short-term thinking.
“A classic example of this is the 2008 Global Financial Crisis, during which many investors panicked and sold their portfolios, locking in significant losses. Meanwhile, those who held their investments and stayed patient benefited from the market’s subsequent recovery. The Federal Reserve Bank of San Francisco published a report demonstrating that investors who stayed invested through the crisis experienced higher returns over the following decade compared to those who cashed out during the downturn.”
Getting rich doesn’t happen overnight
In many facets of life, patience is needed to achieve success. Creating wealth is no different. You are not going to get rich overnight. It’s a long process with bumps in the road. Staying the course is key. Here are a few tips to help you on the path towards financial freedom:
• Trust the process. It’s important to trust your investment strategy and do your best to tune out the talking heads who create fierce headlines and may strike fear or hesitation into an investor.
• Make decisions when life’s circumstances change, not your emotions. It’s best to make allocation changes based on what’s changing in your life, not on your emotions. Some life events that could drive change include retiring, switching careers, expanding your family, or getting a raise.
• Ask for help. Part of having trust in your investment decisions is knowing exactly what they are. A financial adviser can both help take some of the emotions out of investing and answer any questions you might have along the way, so that you know exactly what you’re investing in and what strategy to use to accomplish your financial goals.
It’s a long road, but if you have patience and trust the process, there’s a great chance that you will achieve financial success.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
aaron@lighthousecapital.co.il
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.