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Like Being A Vol Fan, Success in Investing Takes Patience

Meridian Points

like-being-a-vol-fan

Didn’t it feel good to finally take care of business and defeat those Florida Gators? I don’t know who wrote the song, “It’s Great to be a Tennessee Vol,” but I do know that it’s not always a walk in the park.

Sometimes it’s just not that great to be a Vol. Much of the time it’s very frustrating (Lane Kiffin, the first half of the Florida game, the close losses last year) mixed with joy (Pat Summitt, last second victories, tailgating outside Neyland Stadium).

Over time I have learned not to get too excited when things are going well and to be patient when things don’t go as planned. But doing so is easier said than done, and further complicated by the fact that it can be hard to tell whether you are being patient or just plain stubborn.

This got me thinking about investing and saving. Specifically, recognizing the difference between being stubborn and being patient is a key to building wealth.

It is very frustrating to make a solid plan for retirement only to experience a housing bubble burst or an event like 9/11. In the midst of significant events, how do you know if you should hold tight or change course? Reacting to outside events by liquidating your portfolio has proved to be a mistake for long-term investors over and over. Think Brexit, the 2008 financial crisis, 9/11, etc.

Think about how you feel when your portfolio drops in value.

Do you punish yourself by holding on for the wrong reasons? Let’s say you own a mutual fund that you know isn’t a good fit for your portfolio, but because its share price has dropped from $40 to $25, you decide to sell it as soon as the price goes back up to $40. Most of us hate failure and selling confirms that we made a poor choice. It is probably wise to sell any investment that isn’t a good fit for your portfolio no matter the price.

Or maybe you punish a good investment for being down. Admittedly, it’s tempting to sell when something has dropped in value or lagged behind the other funds in your account. However, short term lackluster performance doesn’t make an investment bad or unsuitable. In fact, it’s often a symptom of a diversified portfolio. The point of diversification is to spread risk around with a group of stocks or funds that don’t all behave the same way. This means that at any given time it is likely that you will be disappointed with one or two investment positions.

A stubborn investor will always be vulnerable to the cognitive biases and behavioral tendencies that can derail a portfolio. A patient investor takes the time to develop a thoughtful portfolio strategy that serves as a guidepost when the financial ride gets bumpy.

When it comes to your money, patience is not just a virtue – it’s a necessity.

This column was featured in the October 2 Knoxville News-Sentinel. You can read it here: Like Being A Vol Fan, Success in Investing Takes Patience

Meet the Author

Tom Coulter, CPA

President

Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).

Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.