Invest for the Long Term: The Power of Consistency
Updated: Jun 3, 2023
*Not financial advice. Your money, your choice*
In our fast-paced world, where instant gratification often takes precedence, it's easy to overlook the importance of consistent effort over time and the impact it can have on our lives. Whether it's maintaining physical fitness or building a strong financial foundation, the habit of saving and investing is akin to exercising regularly to improve our overall well-being. By looking at these two different areas of life, we can better understand the power of consistency, compound interest, and their ability to yield significant gains over time be it in the gym or in a bank account.
Exercise
Regular exercise is a familiar concept to many, and it serves as a powerful analogy for the benefits of consistency. Engaging in physical activity, even for just a few minutes each day, can lead to remarkable improvements in our fitness levels and overall health. Numerous studies have demonstrated the positive effects of consistency in exercise:
a) Long-term Health Benefits:
A meta-analysis published in the American Journal of Lifestyle Medicine found that even a modest amount of regular physical activity, as little as an hour of walking per week (starting with a sedentary lifestyle), can measurably reduce the risk of heart disease, improve fitness, and increase life expectancy by several years.
b) Cognitive Enhancements:
Consistent exercise has been shown to improve cognitive function and memory. A study published in Frontiers of Neuroscience revealed that regular physical activity is associated with a reduced risk of developing Alzheimer's disease and other forms of dementia. Other studies have shown similar results as well as increased neural plasticity meaning that it’s easier for us to continue to learn. And guess what! As long as we exercise, neural plasticity stays pretty strong as we age.
Saving and Investing, The Consistency Connection
Similar to exercise, saving, and investing requires consistency to achieve favorable outcomes. By establishing a habit of setting aside a portion of our income and consistently investing it, we can reap significant benefits in the long run.
A couple of key points:
a) Wealth Accumulation:
A study conducted by Fidelity Investments found that the most successful investors were not those who timed the market or made frequent trades but rather those who consistently contributed to their investment accounts (specifically to index funds); a technique called dollar-cost averaging. Over time, the compounding effect of consistent contributions allowed their wealth to grow significantly, outperforming those who tried to time the market.
The Power of Investing
Charles Schwab: $2,000 invested annually in a hypothetical portfolio that tracks the S&P 500® Index from 2001-2020. Even bad timing is better than cash but not better than investing as you're paid or dollar cost averaging
b) Retirement Readiness:
Consistency in saving for retirement is crucial to ensure a comfortable future. According to a report by the National Institute on Retirement Security, individuals who consistently contribute to retirement accounts, such as 401(k)s or IRAs, are more likely to be prepared for retirement and have a greater sense of financial security. This report is from 2010, however the trend has not been improving
The Power of Small Steps
Both in fitness and finance, taking small steps consistently over time can yield remarkable results. The key is to focus on building sustainable habits rather than seeking quick fixes or overnight success. By dedicating a few minutes each day to exercise or consistently saving and investing, we set ourselves up for long-term success. I only had mediocre successes while rowing for a realllllly long time (almost a decade) before seeing any major successes like this gold from the American Collegiate Rowing Association National Championships.
Photo from Row2k.com (I'm the short guy)
a) Habit Formation:
Research from the European Journal of Social Psychology suggests that it takes an average of 66 days for a behavior to become automatic and ingrained as a habit. Therefore, starting small and gradually increasing the intensity or commitment is crucial to ensure the habit of saving and investing becomes second nature.
b) Financial Security:
A study by The Urban Institute demonstrated that individuals who consistently saved even small amounts, such as $25 per month, were less likely to experience financial hardship and were better prepared to handle unexpected expenses or emergencies.
Just as consistency in exercise can lead to improved physical and mental well-being, developing the habit of saving and investing consistently can pave the way to financial security and a brighter future. The power of small, consistent actions cannot be underestimated. By recognizing the parallels between fitness and finance, we can appreciate that even dedicating a few minutes each day to these endeavors can result in significant gains and better outcomes over time. I always do my best to embrace consistency, prioritize long-term goals, and take those small steps toward a better future.
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