The Power of Patience for Investors


April 18, 2019

I am going to guess that you have plenty of opportunities to practice patience. It's required for good parenting and also comes in handy when navigating office meetings and politics.

But how patient of an investor are you?

I am asking because people are always asking me what they should invest in, or whether they should buy Investment A or sell Investment B. There seems to be this sense that being actively involved is important.

I am here to tell you that patience could be your most valuable investing skill. Especially when it comes to saving for retirement.

Once you settle on the right mix of stocks and bonds for your portfolio, and are sure you are invested in low-cost index mutual funds or ETFs, my advice is just focus on funneling as much money as possible into those portfolios. Ideally, your contributions will be set up to automatically come out of your paycheck (for workplace retirement plans) or from your checking account (for IRAs).

Then, practice patience. All you really need to do is check your account once a year to see if you need to make any changes to bring your overall allocation back to your target. For instance, if your goal is to have 60% in stocks and 40% in bonds, but after a strong period of stock market performance your mix is now 70/30, you might want to either sell some stocks and reinvest that in bonds, or maybe direct all your upcoming contributions into bonds to bring your mix in line.

Other than that, sit tight. Especially when the stock market hits a rough period and everyone is freaking out about a bear market. Not you. Because you are going to remind yourself how patience pays off. I want you to keep this information close by for reference during a bear market.

Someone who was invested in U.S. stocks from 2000 through 2017 earned a solid annualized return of 7.3%, according to Morningstar. Over that stretch, there were more than 5,200 days when the stock market was open, and it included two major bear markets. But someone who wasn’t patient and tried to "time" the market by jumping in and out, likely did far worse. If you missed just the 10 best days for stocks in that entire stretch -10 days out of more than 5,200 - your return was cut in half to 3.5%.

I hope you can summon the strength to practice patience with your long-term investments.

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