During the past election cycle one candidate often used the phrase, “This is America. There is nothing we cannot do if we do it together.” It made a great soundbite, but it was absolutely not true. The idea was not new. Parents use this line with their kids all the time. “If you believe in yourself Sally, you can do anything.” Coaches use it with their teams before the season begins. “If we work together, we can defeat anyone.” School counsellors use it with struggling students. “Johnny, you can accomplish anything you set your mind to.”
There are laws that govern life, and success only comes by obedience to those laws. Setting our mind to something outside of the laws results in failure. For thousands of years people died jumping off cliffs trying to fly. It wasn’t until the Wright brothers learned, and then obeyed the laws of flight, that it became possible.
Many investors act as if they can succeed without learning and following the natural laws that govern investing. This becomes for them as fruitless as jumping off a cliff with feathers strapped to their arms. Here are just a couple of the laws of investing investors should commit to follow.
The law of time. Just as it takes time for a mighty oak to grow from a small seed, investing takes time. Attempting to force money to grow at an unnatural rate encourages disaster. Putting off saving until late in life defies math and increases the likelihood of falling short of your goals.
The law of reasonable returns. Investment returns are related to the level of risk one takes. Bank savings accounts have no principal risk but also a low rate of return. As you climb the risk ladder, the potential rate of return goes up but so does the likelihood that you will lose money. If you try to push money to unreasonable returns, this law increasingly calls for failure.
The law of responsible harvest. Investments are designed to bear fruit but often people try to harvest too much, too fast. The amount of the harvest needs to be based on the investments’ ability to produce, not on your personal desire for the fruit.
The law of hard work. We live in a day when politicians try to negate this law with continual offers of reward without effort. This practice cannot succeed indefinitely because the law of work is strict and unchangeable. You can’t get something for nothing. Either you, or someone else, will pay the price for it. If you want to be a successful investor you, or someone you hire, must do the hard work. That includes researching suitable investments, making changes as needed, and the difficult task of sticking with your plan when things get tough.
In investing and in life there are things you can do if you put your mind to it, and things you absolutely cannot do no matter how hard you wish you could. Success comes from knowing the difference.