The key principle for investing: celebrate patience as a competitive advantage

Consistent investing and compound interest can turn $96,000 in savings into $210,552 in just two decades. Psychologists for a good friend, chefs for the family, handymen for the house, and even gardeners. However, there is one that is more figurative than literal, one that we do not notice and one that we should aspire to become: architects of our economic heritage.

Building wealth, whether small or large, starting from any kind of foundation, is very similar to building a house. First, you need to know what you want to build, then you draw it and review it on paper, choose the materials, and, after all that preliminary work, you start building. Foundations, installations, walls, beams, partitions...

An investor, in addition to being an architect, is also a builder of prosperity. Prosperity of one's own and that of others. With all the architectural work done, when the house begins to take shape, the foundations of wealth begin to be laid. Let's take a look at some interesting facts.

Investing versus not investing has a very different outcome over a decade. In fact, if we break it down into numbers, a household that saves $400 every month will have $48,000 after 10 years—not counting the effect of inflation. The same household that invests that $400 in a 7% portfolio will have $69,637 after 10 years: more than $21,000 difference. 
If this practice continues for two decades, the first household would have $96,000, while the second would have $210,552. The difference is enormous.

But you know what? According to the World Federation of Exchanges, in high-income countries, a 10% increase in market capitalization is associated with a 0.045% increase in long-term economic growth. The relationship in low- and middle-income countries is weaker, reflecting challenges such as underdeveloped financial systems and structural inefficiencies.

Architect, builder, and yogi? No, you don't have to do the sun salutation, but you do have to stay calm. As Warren Buffett said, the real secret lies in the long term. If you already have the plans, if the house is already starting to be built, all you have to do is be patient. If you change your mind about what you wanted at the beginning, everything will probably be delayed. The more you swerve, the longer it will take to reach your goal, and the more difficult it may be.

If you think the previous example is not enough, consider how the effect of constant investment and compound interest transforms savings of $96,000 into $210,552 in two decades, according to a very revealing study by Fidelity.

The asset manager decided to conduct a survey among its investors to find out who the best ones were. To do this, he decided to collect data from 2003 to 2013 and discovered that those with the best data were either those who had forgotten about their investment or those who had died. That is, those who didn't touch anything.

In addition to this data, there are many other factors that indicate how retail investors earn less than larger investors or index investors. Among the reasons are always impatience and playing with entering and exiting the market.

Building a cathedral is not the same as building a small village house. The first one remains for centuries. Among their many differences, one of the most important is the construction time. The cathedral requires patience, patience to make history. Investment is similar.

Long-term investing does not mean buying an asset and making no changes, forgetting about it forever. It means choosing good assets, making regular contributions, and reviewing your strategy. As in all construction, sometimes problems arise and materials or finishes need to be changed. The same thing happens with investment: the general plan remains unchanged, although some details may be adjusted in order to achieve the final objective.

Would it make sense to maintain investment in a sector that is no longer interesting? Probably not. It's a good time to take those profits and put the money somewhere else. That's what managers and advisors are responsible for. Remember that problems arise in all constructions and sometimes the material or finishes need to be changed. The same thing happens here. The plan always remains the same, but some details may change to achieve the final objective.

The current financial system, and more specifically the monetary system, is inflationary. This means that prices rise every year and the money you have saved loses value year after year. For example, the US dollar has lost 21% of its purchasing power since 2020. In other words, a family that had $100,000 in non-interest-bearing accounts or deposits in 2020 would now have $79,000 in real terms. Therefore, doing nothing is also doing something. 

In the late 1970s and early 1980s, economist Harry Browne developed the theory of the permanent portfolio, which he later popularized in his book Fail-Safe Investing. With this approach, Browne created a portfolio that would always perform well, regardless of the economic cycle. The goal was to invest 25% in stocks, 25% in long-term bonds, 25% in gold, and another 25% in liquidity (generally in monetary terms). Well, this portfolio would offer a return of between 6 and 9% annualized since 1972.