Managing Impulses to Build Wealth
How the instant gratification culture is holding people back
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Growing up as an immigrant, investing and portfolio management was not a part of my upbringing. A college degree and a lifetime of work were supposed to be sufficient to build a nest-egg to retire on. In high school, I took a finance class where I learned such concepts as compound interest and buying low/selling high, however, even then, the access to the stock market was largely through brokerage firms that carried fees per trade.
With the advent of Robinhood and the elimination of transaction fees from other retail brokers, putting money in the market is a thumb swipe away. Through this accessibility, an entire generation of day-traders was created. While amateur investors chase the dream of turning thousands into millions, the average investor is more likely to lose their money than beat the market. Meanwhile, their debt climbs ever higher.
The culture of instant gratification is the biggest lie that we swallow up. It forces people to look at the now and to delay thinking about tomorrow as they fiddle with shiny new toys. Yet, as the future becomes the present and the novelty of our decisions wears off, the consequences demand payment.
“It is human nature to want it and want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturity.” — Dave Ramsey
Stop thinking short-term with your money
The risk of losses from short-term investment strategies far outweighs the potential for significant gain. Short-term investors face greater market volatility, especially with all-in strategies on “hot stocks”. Furthermore, a lack of diversification means that the loss is maximized if the price of the stock plummets. Even if marginal gains are realized, short-term gains are taxed at the personal income tax rate versus the more favorable capital gains tax rate for investments held over one year.
Websites like Stocktwits and Reddit add further incentive to chase the win with entire communities pumping up various stock picks. Instead of relying on company fundamentals, inexperienced investors are taking the community’s sentiment to heart and risking…
