What’s the key to success in investing?
If you talked to the so-called gurus of Wall Street, you’d likely get a bunch of confusing answers based on conflicting economic theories, cultural trends, speculative ventures, overseas markets, and countless other factors that supposedly play a role in how the market performs.
I have a simple answer to the question. And it might surprise you.
The key to investing isn’t something Wall Street can offer. It’s something only you can provide.
Patience. Old-fashioned patience.
Compound Interest Meets Bamboo Trees
I’ve often spoken about the power of compound interest in planning for retirement. Let’s say you invest $1,000 and it earned 10% a year. After one year, you’d have $1,100—the original money plus $100 that interest earned. The second year, you’d have slightly more—$1,210—because you’re earning interest on top of interest. The investment compounds, or builds up, over time. Now $1,210 doesn’t seem like a big deal at first, but it becomes a big deal later.
You see, compound interest will help you reach your retirement dream, but it won’t happen overnight. It won’t even happen in a year. Or five. It’s kind of like how bamboo trees grow.
Let’s say you decide to plant a bamboo tree (actually, it’s considered a grass) in your backyard. You get the seedlings and the right soil. You do all the necessary planting and watering and nurturing as instructed. Then you wait. And wait. And then you wait even more. Six months pass and no change. After a year, you still don’t see a single change. You’ve put in all this work, but you don’t see any evidence that your hard work is paying off. It looks like nothing is happening.
Then, five years later, you notice that a bamboo shoot has popped out of the ground. The next day, another appears. Then another. And once they break ground, they grow exponentially. Some species of bamboo can grow 35 inches per day! What once seemed lifeless now shows unbelievable growth.
That’s what happens with compound interest. It works behind the scenes, unnoticed, for years before you can see significant growth. But then out of nowhere, you’ll see crazy growth—if you’re patient with your investments.
How to Get Huge Growth on Investments
Let’s say you received a $50,000 inheritance in your mid-20s. Lots of people that age would blow that money on a new car, nice furniture, a new wardrobe, and a bunch of other stuff. But not you—you invested it and got 8% interest. After a year, you’d have $54,000 without doing anything! In 10 years? You’d have more than $100,000. In 30 years, you’d have over half a million dollars. And if you left that money alone for 40 years, you’d have over $1 million. And you didn’t do a single thing. It’s what you didn’t do that matters. You didn’t lose your patience.
The Power of Patience
We live in an instant culture. We want it, we get it. Immediately. From downloading music to pain relief, we are used to getting what we want now. Americans are impatient people. Just wait in line at a theme park and you’ll see this demonstrated! The problem is that being impatient will derail your retirement dream.
To combat impatience, stay focused. Keep that retirement number in front of you—that amount of money you need to enjoy the retirement you’re dreaming about. Don’t let anything distract you, whether it’s a blog post or a friend with an amazing “investment opportunity.” And don’t get spooked by the market’s ups and downs. That’s normal. In time, it will recover.
Remember, haste makes mistakes—especially when it comes to investing. Don’t let impatience rob you of your retirement dreams.