The Need For Investment Discipline

As an investor, you can hear about all the different kinds of investments and learn about all the different strategies to attain success in creating wealth, but everything will come to naught without being able to imbibe discipline.

Here’s a story that is probably all too familiar to most of us. Let’s say a friend of ours, Bolu, receives funds of N500,000 and has decided to spend half on meeting personal needs and the remaining half on saving and investing.

He starts by splitting the funds into separate accounts. For his saving/ investing account, he invests 200,000 in equities and a fixed deposit account (with a penalty for early withdrawal) and leaves the remaining 50,000 in his savings account to yield interest and to also serve as a liquid investment.

However, two weeks into his journey, he exhausts the N250,000 meant for meeting all his needs and wants. Next, he starts by taking bits of his N50,000 liquid investments always promising himself that he would refund it.

Soon, the entire 50,000 is exhausted. Then he sacrifices 10% of his investments as well because he broke his contract for the fixed deposit investment and spends the remaining money he gets. Finally, he also sells off his stocks and is back to square 1 – zero money, zero investments.

What is the cause of Bolu’s failure in investing? One word: Indiscipline. There are certain principles of life that cannot be avoided.

The principle of sowing and reaping, the principle of attraction, etc. One of such age-long principles is that of discipline, and while discipline is required in virtually all parts of our lives in order to attain a level of success, it plays a very huge role in investing.

As an investor, you can hear about all the different kinds of investments and learn about all the different strategies to attain success in creating wealth, but everything will come to naught without being able to imbibe discipline.

Discipline cuts across a range of activities but it is largely tied to having control over one’s self by enforcing obedience or order. It also involves being able to work in a controlled system and this could involve submitting your desires to specific rules or standards.

There are different ways to ensure (or at least strive towards) discipline and they include:

1: Create plans and do not break them:

The plan could be your investment objective or a financial budget. Whatever the case may be, make it a point of duty to not dissuade unless it is objectively the best decision to make.

2: Avoid Impulsive anything:

One of the biggest challenges that fosters indiscipline is the act of impulse. Be it impulsive spending or impulsive decision making, you must learn to stop and think before taking actions.

3: Understand that you are one of your biggest risks:

It is not uncommon to see people blame their indiscipline on risk. For example, “I heard the market was going to crash so I removed my money and spent it... after all, it is better in my stomach than lost.”

If this is you, then you must recognize that just the same way inflation poses a risk to your investment, you and your own emotions pose a risk as well. As such, the same way you set up systems to mitigate other forms of risk, you should also set up systems to eliminate the possibility of riskiness in your decision making, your actions, and inactions.

Of course, when the stakes are higher like in active trading, a simple act of indiscipline like sleeping past when markets in another country you’re trading in opens, could cost you a ton of money in just hours.

The skill required to invest accounts for just about 25% of the work. The rest lies in your ability to implement those skills and strategies towards the success of your venture. The difference between a successful investor and an unsuccessful one is disciple. Make better life and investment decisions today.

Written by Lawretta Egba.