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Timely Tips on Timeless Investing

The wisdom of considering life lessons from the past, present and future is certainly nothing new, as evidenced by Aesop's B.C. fable of "The Ant and the Grasshopper." But recent research by Stanford University's Professor Emeritus of Psychology Philip Zimbardo has indicated how important it may be to your success as an investor.

Your relationship with time is potentially even more important than high levels of financial literacy. Based on a survey of 3,000 participants from six countries, the study concluded, "Just because you have the ability to do the math, does not mean you are more likely to be financially healthy." Instead, among the strongest determinants of success appeared to be whether the participant was a past-, present- or future-oriented thinker.

Which are you? You can take the study's survey yourself if you'd like to find out.

At first blush, you may assume future-oriented thinkers – our inner "ants" who know to store in provisions for leaner days ahead – would exhibit the most financial health, with present-thinking grasshoppers faring the worst. To a point, you'd be on the right track. Here's a good post from Behavior Gap's Carl Richards on some of the potential weaknesses related to instant financial gratification.

But in fact, according to the study's results, it is the wise, old owls who fare the best over both grasshopper and ant. Past thinkers, who heed what their past experience has taught them, were most likely to be "financially healthy," as defined by avoiding bad financial habits such as borrowing money at high interest rates or carrying a high credit card balance, filing for bankruptcy or experiencing foreclosure.

We've long suspected similar concepts to be the case. The late Dr. Edward Banfield of Harvard University reportedly concluded similarly in his own, earlier research that "long-time perspective" is a better predictor of upward mobility than other factors such as family background, education, race or brainpower.

It's interesting to see recent inquiries continue the theme championed by Dr. Banfield and likely others before him, with fresh supporting data. In that respect, we believe that it's worth incorporating a healthy dose of all three elements of time – past, present and future – into your well-rounded life. To quote Morningstar's John Rekenthaler from a recent book review we enjoyed, "A powerful mindset is at least as important for investing success as is a powerful mind."

 

 

 

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