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Here on Reel From The Real, i write what i’ve learned in investing x personal finance.
My goal is to:
share optimistic and positive energy - because the hustle is real x rough enough
personalise personal finance that bit more.
😎 To your wealth,
Aila Obiocha
Today’s post began when I was out at lunch with my friend. Soon enough, we started talking about my two favourite subjects: finance and investing.
At age 50, he had decided to take his attempt at financial independence more seriously, and actually start climbing the mountain of personal wealth.
We started talking about investing mistakes, what he would do if he was starting all over again, what he wishes he had done at a younger age, etc etc. That’s when he said he advises younger professionals to set aside small amounts of their salary each month for savings and investments. Even something as little as, say $50 a month, could add up to a meaningful net worth over decades.
One of the most damaging effects of earning money through a salary is that we become conditioned to small but frequent amounts of money. This condition of making money influences the way we manage money and the way we multiply money.
But wealth does not often come in small x frequent amounts. In fact, from what I’ve seen, wealth arrives in large x lumpy x infrequent amounts. In business, there may be long periods of activity at the beginning with no real payoff, until an event happens - a large customer order, an IPO, a merger - some event that delivers a large, lump-sum that changes your financial future, and sometimes that of your generation.
Same with investing. Often, the best decisions are transformational bets that take a considerable amount of time to mature. But when they do, they deliver large sums which change our financial future.
I disagree with my friend. Investing in small x frequent amounts can cause us to be more unwise than necessary in the game of personal wealth. I’ve seen and heard people gamble with money, buying and selling stocks for the silliest reasons [ hope and hype are my top two 🙄 ] - and often these are the people who can least afford to be so easily parted from their money.
I think a part of this reckless approach to multiplying money is because the amounts that are involved are often small, and small is forgettable.
Small is small enough to give you the pleasure of bypassing your brain, plus the excitement of clicking the button, minus the regret of seeing your bank account reset to ＄0.00 from making a thoughtless decision.
Small is comforting.
Small is forgiving.
In investing,
what is comfortable
is rarely profitable.
- Robert Arnott
In investing, small makes you believe you are smart, and never lets you suspect you are lucky. The small investment encourages the indisciplined investor.
Small tells us to trash discipline. Large trains us to embrace it.
I’ve always thought about the importance of size in success in anything. Agriculture. Skills. Businesses. Wealth. Family. When I first started investing, I saw how important size was to allocating capital, managing portfolios, magnifying wins, and minimising losses.
I’ve always known that size is important to investing. But until this conversation with my friend, I had never thought about the discipline of size. How the size of your investment actually introduces discipline to it.
There is a discipline that comes with A) stacking large amounts of money, and B) investing large amounts of money. I know it because I’ve learned it. Not just that. I’ve felt it. That sinking feeling in your stomach when you complete a wire transfer for a $20,000 fund investment, or click the “BUY” button on a stock for $10,000. For an object that is physically paper, money can pack a pretty hefty punch to the gut.
If we had to invest $100,000 all at once, in one go, I think most of us would become far more thoughtful about this than if we had to invest $100 a thousand times.
And yet, both methods lead to a $100,000 total investment at the end of the day. Two different ways to invest the same $100,000, but one method would involve more discipline and seriousness than the other.
Once large 💰💰💰💰 are involved, playtime is over. It gets real, real fast.
Have you found that you have been more thoughtful about large amounts of money vs. small amounts? If you’ve made a big investment such as buying a house or angel investing into a fund, compare the process of that decision versus trading a random $100 in your investment account or crypto wallet.
Was there a difference in the level of seriousness with which you made both decisions ?
Did you analyse the large 💰 decision more carefully ?
Did you take more time to decide on the large 💰 versus the small 💰 ?
a couple weeks? months? years ?
If the answer to any of these is ‘Yes’ or even ‘Maybe’, then you know about the discipline of size, and you know that it matters in investing.