Reward Yes - But Only Tomorrow

My youngest son is 3.5 years old. He collects and hoards everything - sweets are his favorite. When he receives candy or chocolate, he always wants the maximum amount possible. You might think what child does not. However, the trick is, he does not eat them at all! The accumulation of treasures is far above consumption. His 18-month older sister sometimes drives this behavior up the wall. She is a different type and prefers to enjoy the sweets right away.

The marshmallow test

One candy right away or two later? In the 1960s, 4-year-old children had to make this choice. Those who could wait were more successful later in life. This is probably the shortest summary of Walter Mischel's marshmallow test at the Stanford Campus in the USA.

An interesting topic, because long-term investors do nothing different. They not only refuse to eat the chocolate now, they actually hope it will increase over time. A sensible approach.

Sacrifice and recognition

Deferred gratification is a term derived from psychology; and it was there that Walter Mischel laid a foundation for much further research. The deferral mechanism has worked particularly well for our customers. As a result, they would not be where they are today. If you always consume everything and do not underspend your income, you will not be able to save up capital to invest.

Many a young person sees a large fortune and thinks, I want that too. But when he or she learns that decades of hard work, discipline and - yes, let's call it what it is - sacrifice were involved, the enthusiasm is usually reduced. I want that too, only faster, is often the reaction received. If you then counter that with a saying like, grass does not grow any faster if you pull on it, you rarely make friends.

Compound interest miracle

Nevertheless, it is important to learn early on that certain relationships are indissoluble. Our brain easily understands linear developments. Saving 50 euros every month over 30 years makes 18,000 euros in the end. That is easy to calculate in our heads. Yet, it is not quite so easy to estimate that at 3 percent current interest, it is already 29,000 euros, and at 8 percent, it is over 70,000 euros.

Albert Einstein is reported to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Good for us, because we can understand this miracle more easily than the theory of relativity. Even more effective than what we understand, however, is what we experience, which is why an early start is advantageous when it comes to investing and compounding.

Candy only for the patient

When investing in equities, another facet comes into play. After a thorough analysis of the business model, one decides to buy the share. This is followed by a long period of patience. Sometimes, unfortunately far too rarely, one is lucky and the original investment thesis quickly materializes. The hidden value is recognized by the market, the company is taken over or the hoped-for growth accelerates strongly.

A surprisingly quick win today is worth more than the potential jackpot in an uncertain future. However, you usually have to wait until the magic of entrepreneurship and compound interest shake hands.

The true values in life

Reward deferral is always a good thing, however, do not overdo it. Time with family and experiences with friends are equally well invested. The resulting emotional return has a high value. This is not something to be put off, but to be enjoyed to the fullest!

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