I just finished reading the book "Why We Sleep" by Matthew Walker PHD. It's an awesome book which I would recommend to anyone. Dr. Walker is a leading sleep expert with decades of experience when it comes to the importance of sleep. The basic crux of the book is that almost all of us are not getting enough sleep, and that we are all doing many little things throughout our days which sabotage our ability to get a good night's rest.
These little things could include, using computers, phones, and TV screens late in the evening which causes our body to think its still daylight. They could also include drinking coffee or other caffeinated beverages at any time of the day. They could even include having work schedules which don't really align with our bodies' natural sleep patterns. The list goes on from there.
All of these tiny decisions get us to the big result that we are not sleeping enough, and from what Dr. Walker tells me, that is a BIG problem. I won't go into all of the nightmarish details about why not getting enough sleep is bad (I'll leave that to you to read the book and find out for yourself), but what I do want to talk about is why we as human beings choose to do things which are so destructive to us. In fact, we continue to do them even after we know they are harmful to us.
Now there are many reasons for this and whole psychology textbooks could be written on this particular topic, but for right now, I'm just going to stick to one reason, and it's one which I think has a direct parallel to investing. The reason is that the choices that we make, that eventually lead us to a lack of sleep, are usually broken up into a bunch of small decisions throughout the day. In the same way, we make many small decisions which leave us sleep deprived over many days, and that eventually leads us to some pretty negative health results.
If I was to offer you the choice of getting a heart attack or not getting a heart attack at some point in your life, you would of course choose no heart attack. Unfortunately, real life doesn't present us with that choice so starkly. The choice gets divided into a bunch of little choices throughout our lives, and even then, there is a degree of chance to it which is beyond our control. Nevertheless, when we don't sleep enough, we are essentially choosing to give ourselves a greater risk of heart attack. There may be other benefits to not sleeping which we prefer, but it is undeniable that by not sleeping, we choose a higher risk of heart attack.
I bet most of us didn't know that when daylight savings switches over in the spring, that the number of heart attacks spikes the following day. Conversely, in the fall when we gain an hour of sleep, rates of heart attacks plummet the next day. The addition or subtraction of one hour of sleep, can make a BIG difference in your health. Just think what you're doing to your body if you're subtracting that hour of sleep, every night for twenty years.
Well just like sleep, investing decisions are broken up into many small decisions throughout your life. Most people don't think that those tiny decisions make a big difference, but if you pile up all of your small investing decisions over a lifetime, they make a huge difference!
If you started investing on your 25th birthday and simply saved $5 a day by putting it under your mattress, you would have $73,000 (not counting leap years) by the time you turned 65. If you invested in low risk GICs at an average annual rate of 3% (which you might not get currently), you would have $141,735.
If you invested in a balanced portfolio which earns 5% on average you would have $231,482 and if you invested in an equity portfolio that earns you 10% on average you would have $888,504. You would have 10 times more money then the person who put the money under their mattress and over 6 times the person who invested GICs. That could be the difference between comfortable retirement and getting up early to go to work for 5 more years.
That doesn't mean that everybody should just go and invest all their money in an equity portfolio and start planning on how to spend their riches in retirement. If you can't handle the volatility and end up selling at bad points in time, you could even end up with less than the $73,000 that the person with the money under their mattress has.
What it does mean though is our tiny decisions today can have a BIG impact on our investments down the road, and we need to be mindful of that. It's important that our investment decisions take into account our risk tolerance, our investment time horizon, and the pros and cons of each investment option. We should carefully consider what our goals are, and how this investment will help us achieve those goals.
Only then can you make proper decisions on how you should be investing. Luckily, many people choose not do this all on their own. They choose to hire an advisor who can help them with these decisions. Either way though, these are not decisions that should be rushed or made without careful consideration. You may even want to sleep on it.
- Craig White, BA, LL.B., CIM
Craig White is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Craig White an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
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