“Make a million dollars in a week!”
Sounds promising, doesn’t it? A quick and exciting way to big money.
So then why would you trade that in for a boring, well-diversified portfolio that flows ever so gradually upward and leaves you nothing to write home about?
The point of your investment plan is to get you from where you are to where you want to be as smoothly and effectively as possible. Though it won’t be an exciting ride, you can rest assured that you’ll get there alive. Think of it as driving a boring old SUV at speed limit instead of a sports car at 250 km/h. You’ll get there slower, and the ride will be less exciting, but your chances of arriving in one piece are a lot higher.
The exciting stuff is exciting for a reason: it moves fast. But this means that it can drop just as quickly as it rose. Also keep in mind that by the time the investment is making headlines, its best days are probably already behind it.
A diversified portfolio, on the other hand, tends to have more consistent returns over time. You can earn good money from your investments, but in a lower maintenance, lower stress way than the more “exciting” stock picks. The SUV still gets you to your destination in good time, but with a lower chance of crashing.
Boring investments may move slower, but they tend to actually get you where you want to go.
It’s been ingrained in us that good results require a lot of work. To finish school, you have to study hard. To run a marathon, you have to spend hours training. Actions equals results.
But not everything works that way. Bread rises when you let it rest. Your body heals when you sleep.
Investing works in a similar way. It doesn’t have to be complicated or difficult. It doesn’t need to involve daily monitoring, frequent trades or picking exactly the right investment at exactly the right time.
In fact, successful investing can be very boring. After building a diversified portfolio, there’s not much left to do but wait. If you take the extra step of automating your contributions, there’s even less to do.
Aside from periodic rebalancing and reviews, there’s no action required. You simply have to wait as your wealth grows with time.
The difficult part is staying the course. Just like committing to getting enough rest, or letting the bread rise before kneading it, the self-control involved in investing is hard.
But the investments themselves don’t need to be. As much as our experiences and nature may suggest otherwise.
We’ve covered a few ways in which successful investing is boring.
How long it can take for your investments to really grow is no different.
Your investments will feel like growing a bamboo tree.
Bamboo is one of the fastest-growing plants in the world, but it takes years before they appear above the soil.
Similarly, you might be ‘watering’ your investments for years before they burst out of the ground and soar to new heights.
It doesn’t happen all at once. Compound interest does its good work over time, but it is worth the wait.
Compound interest is the money you make on your savings and their growth.
When you invest money, it grows a bit. But you really start to see noticeable growth when your investments grow, not only the money you put in, but also the growth you have already made.
Though smart and successful investing may not be initially exciting, the growth you experience in the long run can be.