Do Investing Results Deteriorate With Age?
Welcome to the 151st edition of the Inkosi Wealth Scoop!
In this episode, I’ll explore whether our investment outcomes tend to diminish as we get older and offer three valuable principles to guide you in making wise investment choices, regardless of your age.
- The Scientific Correlation of Age and Investing
- Lesson #1: Be a Lifelong Investor
- Lesson #2: Use Your Youth to Do the Hard Yards
- Lesson #3: Embrace Mindful Investing
If you’re an investor or a business owner who wants to learn how to use your age to your advantage when building your wealth, then make sure to listen to this episode!
01:57 Client Case Study #1
04:47 The Myth of Wanting Financial Independence
06:06 Would You Quit Work if You Could?
07:01 The Illusion of What Really Matters
08:28 The Gradual Path to Financial Independence
13:06 Final Thoughts
Have you ever wondered if your investing improves or deteriorates as you age?
In today’s topic, let’s dive deeper into this question so you can make smart and practical decisions that will greatly help you in your wealth-building journey.
But first, let me share a story that inspired this episode.
I love playing games. But unfortunately, I don’t have many people around me who share that love.
A few years ago, I bought a card game called Jungle Speed for my youngest son, who loved playing games back then.
The game requires you to process patterns and similarities quickly, and it’s also a reflex game where you need to grab a totem when you see a match among the cards.
One afternoon, my son and I played this game at home, and I struggled to keep up with him. He could beat me almost every time, and he found it hilarious how slow I was.
As time passed, he lost interest in playing with me because winning all the time wasn’t fun for him. So we switched to chess, where I occasionally had a chance to beat him.Read More
The Scientific Correlation of Age and Investing
Now, I’m telling you this story because it relates to how we invest.
Our bodies and minds slow down as we age, so I researched how age connects to investing.
We all know that most of the time, our investing priorities shift, and we focus on other things like family, health, and life as we get older.
Our reflexes and agility of the mind also decrease, making it harder to keep up with younger, more agile minds and bodies.
But there is more to life than just building wealth. If we reach our investing goals early, we can have an impact in other ways.
Research shows that experience is more important than speed in decision-making, which is a great advantage for older investors.
Now, the first study I came across was by the National Library of Medicine about how ageing affects people’s ability to make financial decisions.
They found that as people get older, their memory and visual perception decrease. They also found that older people have a harder time understanding the relationship between objects.
As a result, many older people may need help managing their finances because their cognitive abilities have decreased.
While some older people may have simpler finances, others struggle with financial decision-making. This is because their minds slow down, and they may not be as quick to make decisions.
Other studies also looked at this topic and found that the average financial literacy score decreased by 1% each year after age 60.
Although these studies show decreased investment skills and financial literacy with age, some skilled investors over 60, such as Warren Buffet and Charlie Munger, are still active in making investment decisions.
But we must consider that they are exceptions, and not many people in their age group are actively investing.
So today, I want to explore two questions.
The first question is, “How does our age affect our ability to make investment decisions, especially since we are sharper and process information more quickly when we are younger?”
The second question is, “What happens to our investments and wealth as our cognitive abilities decline with age?”
I have read many studies on this topic and applied them to my own experience and that of those I have coached, including financially independent and ultra-wealthy individuals.
Let me share three important insights that we can learn from.
Lesson #1: Be a Lifelong Investor
The first big lesson is to be a lifelong investor, starting early and never stopping.
Warren Buffett is a great example of this because he started investing when he was ten and never stopped.
He became very wealthy not because he was the greatest investor in the world but because he invested for over 75 years, and in fact, 99% of his wealth was made after his 65th birthday.
So, the lesson here is not just about how our brains work at different ages but about adopting the idea that being an investor is a journey that starts early and continues throughout your life.
In my own household, we’ve talked about the idea of investing since my kids were very young, and I encourage my clients to do that with their children as well.
Even if you are just starting your career, it’s never too early to start investing.
The traditional model of building wealth suggests that people stop investing after retirement, but this is not the best approach.
We should aim to be investors for life if we want to leave a legacy and make a positive impact.
Lesson #2: Use Your Youth to Do the Hard Yards
The second important lesson, especially for young investors, is to use your youth to work hard and put in more effort.
Many teenagers and younger investors I talked to felt overwhelmed and anxious about investing, but you must understand that mistakes and challenges are a natural part of learning.
As an investor, here are four things you need to focus on to be successful throughout your life:
- Stewardship (taking care of your money)
- Mindset (how you think about money)
- Knowledge (learning about investing)
- Investment effectiveness (making good investment choices)
When you’re young, your main focus should be stewardship, which means being responsible with the money you earn.
As you grow your wealth, you’ll also need to manage assets and create passive income. But prioritising stewardship is crucial for long-term success.
If there’s one question I commonly get from young investors, it’s, “What should I invest in?”
But before worrying about investments, focus on being a good steward of your money and understanding how to manage it well.
If you’ve got more time, be more open to learning and gaining wisdom from others.
Look for mentors with a proven track record of success and focus on improving the four pillars of wealth-building.
If you use your youth to build a solid foundation for your financial future, you’ll be better prepared to make smart investment decisions down the road.
Lesson #3: Embrace Mindful Investing
The last thing I want to teach you is the importance of being mindful when investing, regardless of your age.
In life, you have to appreciate and make the most of your time.
Some people wish they were younger or regret things they didn’t do when they were younger, but you need to focus on the present.
Even if you’re older and your mind works slower, you can still strive to make the best decisions possible.
Understanding things and making decisions might take longer if you’re in the latter part of your life, but you should still aim for quality decision-making.
If I could advise my younger self, I would tell her to slow down, not rush into deals, and not be influenced by the fear of missing out or other people’s opinions.
If you’re young and have time to make and recover from mistakes, focus on making smart investment choices.
Prioritising making good investment decisions will set you apart from most people, who tend to make bad choices and get poor results.
There’s a journalist named William Greene who spent his career researching and interviewing top investors around the world.
He found that humility is one of the key traits these successful investors share, so with that said, embrace the beauty of where you’re at in life and stop becoming too anxious about building wealth.
Many become frenzied about making money when they are approaching retirement and make destructive decisions.
On the other hand, if you’re a younger investor, your greatest challenge may be navigating the overwhelming amount of information out there.
Some of this information is designed to steer you towards certain investments that may not be in your best interest.
So take your time to learn and experiment, and don’t be afraid to admit that you still have more to learn. Remember to have humility and recognise that investing is a journey.
In summary, investing strategies may vary depending on our age and life stage.
Our cognitive ability and decision-making processes may change as we age, but this doesn’t necessarily mean we can’t make good investment decisions.
When we focus on the four pillars of investing and make mindful investment decisions, we can achieve positive outcomes regardless of age or cognitive abilities.
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