Is investing a good idea: there are two kinds of people in this world

twokinds

During previous blogs, I have posted a lot of academic evidence about investing and finance in general.  Some people are open-minded to changing their ideas when the facts change, and others aren’t.

We all know the types.  The types that will never change their views on politics, life, business, religion or whatever topic you care to name.

Some people will never change.  But even for people who are open-minded about change and implementing some of the tried and tasted ideas in my book, there is an additional hurdle to overcome.

Namely, the hurdle is called human nature.  Most doctors struggle to be healthy and practice what they preach, even though they are starring at the evidence everyday.

In investing too, a lot of the evidence runs counter to human nature, which is greedy, fearful, egotistical and resistant to change.  That is just one reason why even investors who know the facts often struggle to implement what they know.

Or like an ex-alcoholic, they relapse.  They implement the plans for months or even years, but the urge to speculate and over-spend is too great.  What would I suggest people do to hesitate these urges? It is a very difficult question.

One thing that has worked for me is painting a picture in my own mind.  I started painting a picture in my mind years ago, about a life where I could travel all around the world, safe in the knowledge that if something happened to my health or wellbeing, that I would have enough money to live off the passive income.

Importantly, I worked out that if I implemented my plans, I could achieve those plans before age 40.  I do think it is easier to motivate yourself with the idea that it is possible to become financial free at 35 or 40, or 10 -15 years in the future if you are already over 40, rather than the idea that you could have $5M-$10M at age 65+ due to the compounding effect.

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Is investing a good idea: there are two kinds of people in this world 3

So I motivate myself with , short-term, medium-term as well as long-term goals.  If you only motivate yourself with ultra long-term goals, you may feel deflated or lose motivation.

I started out with the ultra short-term goals.  Not short-term investment results, as they are always more volatile than long-term ones.  So I focused on short-term spending habits: how much did I want to save and invest this month, this year and next year.

I then asked myself a question. If I save and invest this amount of money for 10-15 years consistently, how much am I likely to have in 10-15 years? Sure, markets may perform better or worse than average in that time, but those mediums-term goals are giving me motivation to practice what I preach.  I had a big picture but broke the goals down into small pieces.

After all, just like those unhealthy doctors, I am human too.  I myself made plenty of financial mistakes which I will speak about in a blog soon.

Adam Fayed – International AMG – adamfayed@iamgltd.com

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