Bill Gates famously quoted that, “Most people overestimate what they can do in one year and underestimate what they can do in ten years”. Regardless of your view of Bill Gates (and whacky conspiracy theories abound), the adage captures something inherent in human nature. We’re impatient to achieve our goals and equally, we aren’t accurate long-term thinkers. This doesn’t bode well for robust financial planning.
Financial markets are rolled up archaeologies of effort, imagination, cooperation, and competition. The large index charts (like the ASX 200 charts above) track the price performance of the largest publicly listed companies in Australia and provide valuable evidence for both the investor and philosopher alike. These charts tell a story of speculation (the net result of ~450 million trades per year, in the case of the ASX), as well as productivity, reflected in the fundamental value of the businesses operating within the index.
The history of markets confirms the Bill Gates quote, and provides some useful information:
The short-term story is full of challenge and complexity, rather like our daily lives. Volatility is accentuated on a one-year view. The long-term trajectory can’t be proven by the short-term evidence. This leads to frustration, impatience and a feeling of disappointment. We overestimate what we can do in one year.
The long-term story is much cleaner. It shows a rising trend-line and less volatility (although the Covid-induced selloff in 2020 was pretty extreme!). We can’t experience the long-term story from a psychological perspective while we live in the present. And we can easily underestimate exponential effects (compounding).
Making decisions and building plans on short-term information leads to suboptimal long-term outcomes. This is true for investing and is also true, more generally, when it comes to goal setting in our lives.
It is natural to discount the long-term impact of successive positive decisions. The same is true for repetitive negative decisions. Like the miracle of ‘compound interest’, the long-term outcome of our actions is exponential over time.
My favourite takeaway from a study of financial markets and the financial planning work I do with clients, is an optimistic affirmation of the human spirit. In spite of all our shortcomings – greed, fear, laziness, inefficiency – the end result of our labours is a growing pie and increased opportunity. However, it has never been harder to maintain a patient, long-term view.
We are bombarded by click-bait, negative news, and a never-ending diet of quick fix stimulation. The degree to which we let short-termism dictate our perspectives and decision making has a significant impact on our future. We must find ways of combatting the slide into the 24 hour news cycle.
Financial planning and investment options
A key part of the financial planning process at Synectic is long-term goal setting.
Long-term goal setting provides a framework to consider both potential strategies and investment options. Our financial advisers work closely with different people at different stages of their financial journey to bridge the gap between their current circumstances and their long-term goals.
Book a ‘Discovery Meeting’ to discuss your long-term plans. Our Financial Advisers service right around Tasmania from our offices in Devonport, Launceston or Hobart. By maintaining the ‘long view’ in financial planning, we aim to help you achieve considerably better long-term financial and personal outcomes.
About the author
PJ provides proactive, strategic advice to help you invest with confidence, structure your affairs intelligently, and get the most out of your unique circumstances. Contact us today and ask to speak with PJ.
Peter-James Cameron is a Sub-authorised Representative (#1266801 ) of Synectic Wealth Pty Ltd (ABN 24 615 317 194) which is a Corporate Authorised Representative (#1250871) of Alliance Wealth Pty Ltd (ABN 93 161 647 007 | AFSL 449221) www.centrepointalliance.com.au. Synectic Wealth Pty Ltd is the financial services division of Synectic. Learn more here.
This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.