Just Keep Doing It – mental qualities runners have that investors need

Alice is training for a race so she runs in the early mornings. But last night she couldn’t stop watching Mad Men, so she only got to bed at 1am. She felt dreadful when she was tying her laces at six this morning – but she’s feeling great now, because she did it.

There are two separate decision-making systems in our brain. They’re both designed to help us make decisions which will bring us pleasure and avoid pain.

Your instinctive decision-making system is interested in the here and now (bed is cosy/ running will hurt). It’s always ‘on’, so it kicks in immediately. Your analytical system is the part of your brain that thinks things through. Unfortunately, its default mode is ‘off’, so you have to consciously turn it on to override your instinctive reactions. You click it on to work through a spreadsheet, put a report together, or to remind yourself the reasons why you’re lacing your running shoes at six in the morning.

Obviously, what’s pleasurable in the short term isn’t always best for you down the line. And decisions that seem tough now can produce outstanding results later. That’s why these conflicting decision systems so often get investors into trouble. Everybody knows that you need to buy assets that are cheap now so you can sell them for more money later. But human instincts shy from low prices (keep away from those!), and are thrilled by rising prices (get some more of that!). So executing a profitable long-term investment strategy requires many of the same mental qualities needed to stick to the healthy discipline of early morning runs.

Just Keep Doing It

Runners use a number of strategies to get themselves on the road:
- They make it automatic
Runners schedule specific times to run, on specific days of the week. Since we all find pleasure in productive routines, this “reprograms” the pleasure/pain instinct. Getting up to run feels good now, not bad.

- They know a lot about it.
Humans get a great deal of pleasure from knowledge. If you’ve ever met a runner, you’ll know they can talk for hours about the art and science of running. Most runners proudly own a small personal library of books about running. People like doing things they know a lot about. This keeps runners running.

- They focus on the excellent long-term benefits
A quick Google search reveals dozens of forums dedicated to listing and explaining the very real physical and mental benefits of running (101 Reasons to Run, Running’s Great Life Lessons, and so on). Articulating these benefits “turns on” the analytical part of the brain, overwhelming the instinct to stay in bed.

You can use the same techniques to keep your investment life on track. Dollar Cost Averaging is a highly effective, tried-and-tested investment methodology that does exactly that. Used properly, it will optimise the impact of your monthly savings on your long-term financial wellbeing.

This video explains how and why Dollar Cost Averaging works. After watching it I’m confident you’ll:
- See how to make it automatic
- Know a lot about it
- Understand the excellent long-term benefits

Don’t miss our upcoming seminar, The Psychology of Successful Investing at The China Club in Hong Kong on 13th April. Full details and bookings here.

Ten million millionaires globally, and most are self-made

There are 10 million millionaires in the world today, CapGemini reports. A millionaire is a person with investable assets of USD 1m or more (excluding their home).

The CapGem analysis also shows that most millionaires aren’t born into their money; only 16% have inherited their wealth. The vast majority have got there through hard work, discipline and prudence. 47% are successful entrepreneurs, and 23% are hard-working professionals or managers who’ve diligently saved and invested a lifetime of earnings.

Meanwhile, the actor Nicholas Cage is spectacular proof of the old adage that it’s not what you earn, but what you keep, that counts. Having coined more than $94 million in his acting roles, Cage has blown it all -  on a dozen houses, two castles, two islands, one dinosaur skull, one million dollars worth of comic books, two shrunken human heads, eighteen motorbikes, at least thirty cars, two yachts. And a jet. Now he’s broke AND the taxman’s after him for $6 million.

He used to drive a Ferrari Enzo...

In the book, The Millionaire Next Door, Thomas Stanley and William Danko show that self-made millionaires share particular traits. They are financially well-disciplined: they spend a lot less than they earn, consistently invest their savings, and don’t try to score speculative home runs with their investments. And they don’t live particularly flash lifestyles, because self-made millionaires are really clear on the difference between consumption and saving. This is where Nicholas Cage went horribly wrong.

The CapGem analysis proves that financial discipline and intelligent investing can quite feasibly get you to millionaire status off far less than movie star earnings. In fact, if you invest a monthly average of USD1,202 at a steady 5% return from the age of 30, you’ll have a million dollars by the time you’re 60. And with a steady long term 10% return, you’d need to invest only $442 a month.

So, the good news is you don’t have to down tools and head for Hollywood in search of your fortune. Time, discipline and a constructive investment strategy can grow your perfectly normal monthly savings to a million dollars during your working life, without the need for wildly speculative investment gambles.

Ten million level-headed people have built up  a million dollars. You can too.