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Sep 14

The Number One Reason Your Money Isn’t Growing

the number one reason your money isn't growing

Financial success doesn’t happen in a day, but it can happen over time. If it seems like your money isn’t following an upward trajectory, there may be a simple reason why.

When you plant a seed and water it, you expect it to grow. No one expects a seed to become a mature plant overnight. And yet when it comes to money, it can be uncomfortable to prepare, watch, and wait for your dollar bills to mature over time.

You may find yourself wondering if your money is growing at the right pace or scratching your head when you notice some losses instead of gains. What exactly can prevent your money from growing?

There may be a simple explanation. Let’s have a look at the number one reason that prevents your money from growing.

If It’s Not the Market, It May Be Your Response to the Market

The markets are notoriously volatile. Some days they perform well, other days they take a hit, and still other days they hold steady. This is why you save your money in a well-diversified portfolio that contains a mix of investments allocated across asset classes.

[Related content: How to Approach Investing When the Markets Reach All-Time Highs]

But somewhere along the line, some investors can’t resist the urge to ‘tinker’ with their investments. When the market performs well (like it has been this year), it’s not uncommon for investors to try to capture more growth by buying up more securities. Likewise, when the markets fail to perform, investor behavior can trend toward offloading underperforming investments. In other words, buying high and selling low in direct reaction to the market. This behavior is contrary to the tried and true wisdom of Warren Buffett who advises, “Be fearful when others are greedy and greedy when others are fearful.”

[Related content: Ways to Overcome Investment Analysis Paralysis]

Growth Favors Those That Are Patient

Emotional investment decisions based on either unchecked optimism or fear are dangerous. You may not observe explosive growth in your investment portfolio day-to-day, but that doesn’t mean it isn’t advancing in the right direction.

Investor impatience that leads to impulsive investment decisions is the number one reason that prevents your money from growing. Making investment decisions based on emotion, trying to beat the market in an attempt to get rich quick, pulling your money out of an investment too soon — these are the ways that impatience can stifle the growth of your portfolio or even stop it completely. It’s natural to want to see growth happen quickly, but acting on impatient impulses can greatly impede your chances for long-term financial success.

Impatience is an all too human problem, one that often leads to negative consequences when it comes to investing. Fortunately, it’s never too late to start making smart money choices. With patience and restraint, you can facilitate the long-term growth of your investment portfolio.

The Solution to Impatience

One of the greatest drivers of investor impatience is fear, especially of vacillating markets. When people are fearful, they tend to make impulsive decisions that can do irreversible damage to their financial outlook.

          [Related content: 5 Ways to Overcome Financial Fears]

Being overly reactive to normal and anticipated market fluctuations will most likely turn a temporary problem into a permanent loss. While the markets can be quite volatile over any given period of time, it’s important to keep in mind that things will eventually regain equilibrium.

Here are some steps you can take to resist acting out of impatience:

  • Seek and follow financial advice that is congruent with your needs, goals, and time horizons. Long-term financial success is based on your unique set of needs and goals. Stay the course and seek professional financial advice when the amount of your assets grows beyond the point you are comfortable managing.
  • Remember that investment success is a marathon, not a sprint. Act with deliberation at all times, and aim for realistic returns that are more or less keeping with the overall growth of the market.
  • Go back to the basics. Set attainable goals and make a plan to achieve them within a reasonable time frame. When circumstances actually do necessitate a change, adjust your portfolio slowly over time. Complicated investment strategies are oftentimes not the answer.
  • Set it and forget it. It’s an axiomatic truth that a portfolio that’s allocated properly across asset classes and shifted over time has a very high potential for growth. Once you have your investments set, give it time to grow. If your plan includes such a portfolio, then you can be reasonably confident in its ability to grow over time.

Conclusion

To sum up, acting on impatient impulses is a self-defeating practice. While impatience and a desire for instant gratification are perfectly understandable in the world we live in today, it isn’t wise to let these emotions inform your choices with your long-term investments. Short-term market fluctuations have very little to do with long-term investment success. If you take nothing else away from this discussion, please bear a single all-important truth in mind as you go forward: your financial success is more likely to be determined by the sum total of the financial choices you make every day than by a single investment.

Quantifying just how financially successful you will be in the future may feel like an elusive detail in this exact moment. However, following smart money habits like consistently saving 20 percent of your income toward retirement, deferring gratification, and living out the concept of forced scarcity can help you on your journey toward financial success. And in many cases a financial professional can predict, with reasonable accuracy, just how much your money will grow over time when you exercise these smart money habits and follow an investment strategy based on your needs.