By: Sydney Sekese, CFP® professional and member of the Financial Planning Institute
“A week is a long time in politics”
The above quote is commonly used to depict the fast pace of the political landscape, which changes drastically just over a single week. I would like to adopt this quote and remind readers how fast paced the events of last year (since March 2020) have been. These events affected most areas of our lives and happened at a rapid pace. It is therefore easy to conclude that “a year is a lifetime in one’s livelihood”
As you read this article there’s another common legend at the beginning of each month of April. This is casually termed a fool’s day. Each year, several pranks and jokes are made on this day. Thinking long term is never a foolish approach, especially when faced with a financial decision.
For example, during a financial crisis, there could be valid reasons for investors to be foolish and bail out of investing. This is an unusually uncertain environment we are currently exposed to. Investors may feel that we have arrived at a place we’ve never been before.
At a leadership summit I attended in the past, I was schooled of a VUCA moment which refers to a scenario characterised by Volatility, Uncertainty, Complexity and Ambiguity. Readers are encouraged to embrace this VUCA concept which is likely to be here for a short to medium term, and even long term.
Readers are furthermore encouraged to adopt the long-term perspective when investing for their medium to long term goals. The purpose of this article is to demonstrate that taking this long-term approach will yield more rewards.
Let me demonstrate the benefits of adopting long term perspectives. A recent article I read proposes a logical approach, namely the 10-10-10 principle which is a model that can be adopted for any long-term consideration. So, how does this logic work?
Take a decision in your life, any decision. Maybe it’s whether to buy that celebrity gossip magazine in the checkout aisle. Maybe it’s whether to stop and get an order of chicken nuggets or hot wings after work when you’re feeling hungry on the way home. Maybe it’s something else entirely.
Before you make that decision, ask yourself three questions (with a brief pause after each question and answer):
- How will I feel about this purchase; 10 minutes from now?
- How will I feel about this purchase; 10 months from now?
- How will I feel about this purchase; 10 years from now?
The choice that pops out of those questions with the best overall result; is the choice you should probably make.
Here’s a practical example: Let’s say I’m considering buying this IT gadget I really want and can envision some uses for it, but it costs R 9000.
|How will I feel |
|I’ll probably be excited to have that fresh new gadget under my arm, taking it home to unwrap it and play with it for the first time.|
| How will I feel |
|This is the tricky part. If I honestly use it a lot, I’ll probably be at least somewhat happy with it, but how truly likely am I to be using it daily? Is it something I’m going to pull out several times a day? Or even once a day? When will it replace my phone usage and my normal computer usage and my kindle usage (for example)?|
|How will I feel about this purchase; 10 years from now?||I likely won’t be using it in 10 years – in fact, it’s extremely unlikely. I really doubt that I would trade my experience with that gadget for the R9000 I paid for it at that point.|
So, after funnelling the decision through those questions, I’m probably not buying that IT gadget.
What you think about any choice 10 years from now is a really, really good way to think about the long-term ramifications of a decision that you’re about to make. If you make most of your choices on instinct, they’re not necessarily bad choices, but they’re usually geared strongly toward the short term. It is prudent to lean toward decisions that are the best at the 10-year time horizon whenever possible.