The Cheat Code to Investment Success

The world of finance offers a very interesting, almost funny, look into human behavior.

With the explosion of social media and headline news, we are constantly bombarded with financial stimulus. We hear about the family member who got rich through one stock or cryptocurrency, or the friend who sold out of the market right before it plunged. These circumstances expose us to serious hindsight regret, and/or fear of missing out. 

Additionally, there are seemingly endless "opportunities" that we are presented with to get rich quick. The unjustified calls of multiplying your money overnight can be tough to ignore. Unfortunately, the reason that we still see these is that people don't ignore them. They dive in headfirst and overleverage themselves to try and make a few extra bucks. Sometimes, these can be successful. More often than not, they end poorly.

One reason I find this field of work so interesting is that there is a cheat code to being successful. The problem is that the cheat code is boring, and few people are patient enough to use it.

The cheat code to success is consistency.

Much like anything, consistency is ultimately needed to get where you want to go. If you consistently exercise and eat healthy, you'll be more fit. If you consistently work on your golf game, it will improve. And if you consistently save and invest, you will have a successful financial experience.

The problem with consistency is it's slow, and there are often periods where little progress is made. One of my favorite posts that we've sent out was written by Joe in 2019. We shared this post during a period when market performance over the prior 12 months was flat. In a vacuum, absolutely nothing happened.

At a more granular level, however, the market was incredibly active. For the first time in over a decade, we saw a rise in interest rates, and the Trade Wars (remember those?) were still being negotiated. This caused the S&P 500 to drop 18% in Q4.

At the time, the decline seemed like it would pester on. You can bet many people sold out around Christmas Eve when the market bottomed. This would turn out to be a huge mistake, as markets are up 80% since December 24, 2018.

Vladimir Lenin was the founding member of the Communist revolution that led to the creation of the Russian Soviet Union, so I hesitate to give him too much of a spotlight. However, he is famous for saying, "There are decades where nothing happens; and then there are weeks when decades happen." I particularly enjoy this quote as it is incredibly prevalent in markets.

We've written and spoken about this in excess, but a tremendous amount of market performance happens in small spurts. The chart below does some cherry-picking, but it highlights the importance of consistency when investing.

The difference between staying invested and missing a rally can cause you to miss out on years of investment performance. Missing the small windows where markets jump is nearly impossible to come back from. It's quite simply a lost opportunity. And in the financial world, missing these opportunities can completely derail a long-term plan.

Investing since the start of 2022 has been a grind. Over that period, we've met with almost all of our clients on multiple occasions, and the narrative we've been providing has not been a fun one. Markets have seen a decline, and unlike the prior few years, the decline has pestered on.

During internal conversations at our firm, I have expressed how this market environment feels different from the prior markets I've experienced. The market declines we experienced in 2018 and 2020 were short-lived, and we were back to all-time highs within six months. The last market peak was in December of 2021, and the road back to the peak would require a 15% market increase.

The good news is that, at some point, that increase will happen. The bad news is that we don't know how or when it will happen. It might be a slow, steady rise back to the top, or we could see a short-term sprint. In either case, as long as a disciplined saving and investing strategy is maintained, you will be rewarded.

As always, if you have any questions or concerns, please don't hesitate to reach out.