Could you be jeopardising your financial goals with a short-term focus?
26th July
Short-termism is something that’s hard-wired into our DNA, and we can be constantly guilty of it, in many areas of our lives.
This was perfectly demonstrated back in the early 1970s with The Stanford Marshmallow Experiment which involved placing subjects – children aged 3-5 – alone in a room and presenting them with a simple choice: eat the marshmallow in front of them right away or hold out for 15 minutes and receive two as a reward. Some children quickly wolfed down the treat, whereas others were more inclined to wait. Follow-up studies many years later illuminated an interesting insight: the children who were able to delay gratification also enjoyed better life outcomes. Stephen Palmer of Cranwell Wealth Solutions discusses how this stands as a cautionary tale about the dangers of prioritising short-term thinking and the value of keeping an eye locked firmly on the future.
The sort-comings of short-termism
Sort-termism is arguably more prevalent at present than at any other time in recent memory, as we understandably refocus on our financial wellbeing. During a period of great fragility, marked by high inflation and market volatility, it’s hard not to fixate on immediate needs at the expense of working towards long-term goals.
We need to find a way to work past our fears and overcome the temptations of short-term gains, certainly in the context of our investment strategies. A short-sighted approach to wealth creation will seldom yield the best results. History shows us that market falls are a feature of investing, and volatility should be expected from time to time. However, while these short falls can happen relatively frequently, markets tend to rise again over the longer term.
Past performance is not indicative of future performance
Timing the market with any form of consistency is almost impossible. Missing out on months where the market performed well will have negative long-term consequences for returns, even missing out on a few days could have a dramatic impact.
When stock market crashes do inevitably occur, people tend to respond emotionally and feel compelled to react in order to protect themselves. Whereas it is important maintain distance and ask yourself: what is it I want my money to do, and by when?
The golden rules of investing
Stay on track by thinking in decades not days, have a plan in place, and acknowledge that there will always be times when markets are more volatile. More than anything, try to avoid changing a long-term strategy because of a short-term correction.
Avoiding knee-jerk reactions to short-term volatility and keeping your goals in mind requires discipline. This is where regular financial reviews with an adviser come into their own. If you’d like to discuss your own circumstances and future plans, please get in touch.
The value of an investment with St. James’s Place will be linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Cranwell Wealth Solutions, Wealth Management Practice with branches in Heathfield and Uckfield.
01435 866 101
