New Year’s Revolution
A revolution is defined as
a forcible overthrow of a government or social order, in favour of a new system.
an instance of revolving, the movement of an object in a circular course around an axis or centre.
The traditions of setting New Year’s resolutions are harmless, but the truth is they usually do not come to pass. It is more important to remember the reasons underlying your ambitions, keeping them at the centre of your actions and decisions. With this core, you can remain focused on the path to achieving your goals
I think in terms of the day’s resolutions,
not the years.Henry Moore
If you hit the gym at the start of January, you are probably not alone. However, if by some chance you are still going to the gym three weeks into 2025, you may notice that the crowd is thinning out.
Every start of every year, many of us usually commit to a new year resolution or two. Whether it is getting fit, losing weight, picking up a new hobby, making more money from investing; setting new annual goals seem to be part of an annual cycle.
The main issue with resolutions is that very often, we lose steam as the weeks wear on. The exercise resolution, for instance, tends to fall by the wayside pretty quickly. Interestingly, Google data logs show that searches for topics related to weight loss tend to spike in January every year and subsequently become less frequent as the year goes on.
Location data company, Foursquare, also analysed when people go to the gym and when people go to fast food restaurants. As you might have already guessed, activity in the gym tends to spike in Jan and gradually falls off in the year. What happens then? People start visiting fast food outlets!
So why do we give up so quickly?
Research points to a few problems:
We want big change, and fast, instead of taking small incremental steps.
We make changes based on traditions instead of asking or understanding the need or desire for the change.
We enter with full optimism and do not identify and consider the likelihood and nature of obstacles in our path.
We are not accountable for our own failed resolutions.
We usually do not have the social or interpersonal support needed to carry out resolutions sustainably.
In so many ways, we should learn how to deal with our investments in the same way as dealing with our resolutions.
Constantly Changing Your Investments Does Not Help
Like the annual setting and failing of resolutions, changing your investments constantly will do you more harm than good. Research done on Australian investors shows that during periods of stress or uncertainty (the study focused on actions during the COVID-19 period), people tended to make changes to their investments at the wrong time, which caused their account balances to end up worse than if they did nothing at all.
But it is not only about switching because you are fearful. The fear of missing out was strong as well as this Stanford piece suggests. Investors also tended to switch to the wrong and riskier investments when they thought they were losing out to their peers. The researchers dubbed the feeling of missing out based on relative wealth “irrational”.
Do You Know The Obstacles On Your Investment Path?
We see the headline number “10% per annum returns!” and we plunge headlong into that investment product. However, the salesperson obviously did not tell you that you could (in really bad times) lose -50% of your capital.
So when the markets hit bumps along the way — and we know that it definitely will — panic starts to creep in.
The chart above illustrates this quite well. $1 in the stock market since the last 1800s would be over $19,000 (in USD) today — a stunning return. What many fail to realise is that there are many market calamities along the way. While losses do not appear to be too bad when you take a long-term view, if you zoom in further, your wealth during bear markets could have stagnated for a decade or more each time. These would have been very tough periods to sit through and serve as trigger points for you to inadvertently give up.
Not Being Accountable For Failed Investments
You may see failed investments as a gamble that did not pay off. You pick yourself up and carry on — after all, you can always make that money back again. Often, there is little accountability.
But we all invest for certain reasons. Perhaps it is to accumulate enough to send your children to university. Or the dream of an early retirement with your partner. What would you do when the time comes to send your children off for their education only to find that you are unable to fund it because the money was lost in spurious investments? How would you face your partner if you had to tell them that you’d both need to work an extra 10 years because there is not enough to live off? Coming face to face with accountability at the end will be far too late.
Having Someone to Journey With You
The last reason for failed resolutions is that there is a lack of emotional support and motivation. The same can be said of investments resolutions — where many often get distracted and waylaid. This is the fundamental reason why someone engages an advisor; an advisor that keeps you on the straight and narrow, guides you when the going is tough, and is always there to check in when needed or when you are feeling uncertain.
Out of all the reasons above, having someone to guide you helps to ensure success in the long term. This has actually been studied in quantitative terms.
From the study above, you can see that implementing certain strategies can help you in your investment resolutions. But having a knowledgeable confidante to guide you from making the worst mistakes at the worst time is far more valuable.
In the end, whether it is success in your New Year’s resolutions or success in investing, it all boils down to remembering and understanding the reason underlying those resolutions in the first place. From there, it’s a simple matter of making the necessary changes and having someone to guide you along. It’s not too difficult as long as you have the right framework and the right partner in hand.
If you know someone who needs some investment advice, ask them to contact us here.
