Dear Smart Investor,
It’s still fresh in my mind.
In the past, I participated in the annual Standard Chartered marathon.
The run was no walk in the park.
I had to huff and puff my way through the distance but eventually became a proud recipient of the medal below.
The event still holds cherished memories for me, making it all worthwhile.
The investment marathon
Investing can be likened to running a marathon, rather than a sprint, contrary to what some may think.
Similar to preparing for a marathon, becoming a successful investor requires appropriate training and practice, to hone your investment skills.
And as you become more proficient, it becomes a positive feedback loop that encourages you to run further.
Being a marathoner also requires patience and perseverance as long-distance running requires a different mindset from sprinting.
Conserving energy is important as you hold out for the right time for that last “burst” to pass the finishing line.
As an investor, you will go through the same process as a marathoner. Patience and perseverance are vital, as long-term investing demands a different mindset from quick gains.
Just as an athlete occasionally stumbles or falls during training, investors will make mistakes along the way.
But as you get better, the rewards will start to flow in.
A positive feedback loop results, allowing you to compound your wealth to better prepare for your future, including your retirement.
Patience and perseverance are the hallmarks of successful investors as they navigate a journey that takes years or even decades.
The pinnacle of success
The successful completion of a full marathon will give you a sense of accomplishment and personal satisfaction.
Similarly, for investors, achieving success leads to a rewarding retirement, where their wealth grows, and passive income flows in through dividends.
It may seem daunting at first, but with the right mindset, investing becomes an attainable goal, much like running a marathon rather than a sprint.
If you trade frequently and look for get-rich-quick schemes, investment becomes like a sprint, starting and ending in double-quick time.
While the sprinter may receive a trophy for his or her quick speed, the trader may not enjoy the same rewards.
Trading more often only increases the transaction fees, and offers no reliable method for consistently gaining profits due to the unpredictable nature of short-term share prices.
The path to success is paved with dividends
Dividends can be a way to help you along the journey.
Loading up on dividend-paying stocks implicitly means that you are collecting solid, cash-generating businesses that can afford to pay their shareholders every year.
As these dividends grow over time, so will your stream of passive income.
Armed with patience and a long-term perspective, you can slowly compound your wealth in such stocks and build and grow your nest egg.
Taking the Straits Times Index (SGX: ^STI) as an example, the bellwether blue-chip stock index posted a tiny 1.2% gain in the first six months of 2023.
Looking at the 20-year stretch since 4 November 2002, the annualised return improves to 6.45%.
A classic example comes in the form of Mapletree Logistics Trust (SGX: M44U), or MLT.
Over the past year, MLT’s unit price has declined by 2.3% as the combination of inflation and high interest rates takes a toll on sentiment for the REIT sector.
But if you add up the distributions received in the last five years along with the 33.9% rise in the logistics REIT’s share price, you get a total return of 67.1% or an annualised return of 10.8%.
Not shabby at all once you extend the length of your time horizon.
To truly succeed as an investor, it’s essential to adopt a long-term perspective, just like a marathoner who carefully paces themselves throughout the race.
By focusing on sound investment strategies, patiently allowing wealth to grow over time, and embracing the idea of compounding, investors can pave the way for a secure financial future.
Remember, investing is not a race to the finish line; it’s a journey that rewards patience, discipline, and a steady approach.
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Disclosure: Royston Yang does not own shares of any of the companies mentioned.
