I've been impressed recently on how similar successful long-term investing is to successful long-term weight management. Here are 5 things investors can learn from skinny folks.
1) Lifestyle Trumps All
Millions of dieters jump on the latest fad diet, lose a few pounds, and then ditch the diet only to see the weight return again and again. The local radio personalities seem to be a particularly egregious example (or are at least paid to appear to be.) At the end of the day, however, The First Law of Thermodynamics is still a pretty good theory. If you burn as many calories as you eat, you maintain your weight. If you burn fewer, you gain weight. If you burn more, you lose weight.
Just as with dieting, the most important part of being a successful investor is choosing an appropriate lifestyle. That means a lifestyle that allows you to save 15-20% of your gross income for retirement. It doesn't matter how good you are at picking investments, keeping costs down, or timing the market. If you can't fix the lifestyle issue, you'll never reach a comfortable retirement.
2) Thousands of Small Decisions
Successful weight management is the sum of thousands of decisions that are made every day. Do you take the elevator or the stairs? Do you cycle to work or drive the SUV? Oatmeal for breakfast or bacon and eggs? Cream and sugar on the coffee or black? Seconds? Desert? What snacks do you keep at your desk? The list goes on and on.
The successful investor has the same issue. Every day he is faced with opportunities to spend more than he makes. Not doing so is what provides the seeds his retirement tree will grow from. Likewise, each day the markets are open he is faced with the decision to stay the course, or succumb to Wall Street's marketing machine encouraging him to “upgrade” to the next new thing. Each month he has to decide where to invest his extra income. His investment success is determined by the sum of all these decisions.
This is why those who become rich overnight (lottery winners, and those who receive large inheritances) are often broke within just a few years. They never learned to make the little decisions correctly each day. The same choices that make you rich are the ones that keep you rich.
3) People Want a Pill, a Diet Program, or a Surgery
The weight loss industry does $61 Billion in business per year. That sum (plus the food the overweight shouldn't have eaten) could easily feed every starving person on the planet. Nobody wants to hear “you need to eat less food and exercise more.” They want weight loss pills, and special weight loss programs. At a certain point, many choose to have chunks of their stomach removed or their plumbing changed so they can continue to eat whatever they want and still lose weight. Their doctors justify it because the data shows that as bad as bariatric surgery is for you, it's better than having the ever-worsening diabetes, heart disease, and arthritis that you would have without it.
Investing is the same way. Nobody wants to hear they need to spend less money. Nobody wants to hear that they should invest in index funds and that their stocks are probably only going to return 7-9% a year and their bonds are only going to return 1-4% a year. Nobody wants to hear that the secrets to successful investing are holding costs down and staying the course with a reasonable investing plan.
They want to hear about how the Twitter IPO is going to make them rich. They want to hear about last year's hot mutual fund manager and how Joe's Hedge Fund made 57% last year (and surely will do the same this year.) Get rich quick schemes are no different from “lose 10 lbs a week” schemes. Neither one works in the long run.
4) Good Food Helps
The foodies among us are quick to point out that the situation is a little more complicated than the First Law of Thermodynamics would lead us to believe. That's probably true. Some foods are simply bad for you and your weight, and others are good for you. It's still possible to get very fat on squash and grass-fed beef, but the data is pretty clear that eating real food has some hormonal effects that help you maintain a healthy weight.
Eating real food instead of processed food is similar to investing in real investments, rather than processed investments, like whole life insurance, variable annuities, and hedge funds. Actually buying real companies, real pieces of property, and real loans from governments, companies, and individuals, is good for your investment plan.
If you save 20% of your gross income, you can probably arrive at a healthy retirement even if you decide to use some loaded mutual funds and whole life insurance to get there. However, you're much more likely to have a larger nest egg at retirement (and/or get there sooner) if you only eat good investments like low-cost index funds.
5) If You Want To Be Thin, Do What Thin People Do
Thin people don't think about losing weight. They don't think about diets either. They don't go running, or cycling, or to their soccer game because they want to lose weight. They do it because they enjoy it. They don't pass on that 3rd dessert because they're worried they'll get fat. They pass on it because “they don't need to eat 3 deserts” or “they're already full.” Thin people don't sit all day at their desk, then go home, eat a huge dinner, and plop down in front of the boob tube with a bag of bon-bons and a beer (or three.) They go for a run at lunch before eating a sandwich and an apple, coach baseball in the evening, and eat a healthy dinner with their kids at home afterward. On Saturday, after baseball, they go for a 30 miler with their cycling club. If you want to be thin, do what thin people do. If you want to be rich, do what rich people do.
Rich people don't spend money on things they don't value. Rich people talk about and learn about investing and other financial topics. Rich people work hard. Sometimes they sacrifice lifestyle for greater income. They're willing to prioritize their careers, and change jobs if needed. They choose careers they enjoy, but also careers that are likely to provide significant compensation for their time.
They plug holes in their budget quickly and adjust their lifestyle rapidly to any downward movements in their income. They're willing to sacrifice pleasure now for financial reward later. I find it interesting when people choose not to go to college (or choose a major connected to few lucrative opportunities), only work 25 hours a week, and refuse to move out of their hometown and then are surprised when they show up at their 20-year high school reunion and discover that they're the only ones who haven't “made it.”
Now don't get me wrong. I'm not saying poor people are poor because they don't work hard. I've met plenty of hard-working poor people. But it's very rare that I meet a wealthy person who hasn't put in some very long hours for many years to get where they're at. If my job only paid $10 an hour I'd be spending my evenings educating myself and my weekends looking for a new job (and probably working a second one.)
People don't get rich by buying whole life insurance, or picking stocks, or driving a Benz. They get rich by developing a profession or starting a successful business, taking some risks, budgeting carefully, and investing wisely. There's no point in having money just to have money and “getting rich” shouldn't be your life's focus since you truly can't take it with you when you go, but it's not rocket science to figure out how to have a financially successful life and a comfortable retirement. Just do what “rich people” do.
Neither managing your weight nor managing your finances is very fun. Automate the process whenever possible, and reap the rewards with a long, healthy, comfortable retirement.
What do you think? Comment below!