Senior Father and adult son having a good time at the beach at sunset.
Financial management

How to recover the lost art of disciplined investing

The lasting impact of a father’s disciplined investing on his family and the steps to make such discipline easier.
7 minute read
February 23, 2024
Financial management
Financial wellness
Save for retirement

My father was a payroll clerk, but his real passion was investing in stocks, back in the day when you still obtained quotes from a newspaper and trading was done at a high commission through calls or snail mail to your broker. In fact, my father kept paper stock certificates in a gray metal lockbox stowed away in my closet to save on the custody charges brokers levied at the time.

He automatically reinvested the dividends and regularly added to his holdings—a true disciplined, buy-and-hold investor. But even if he wasn’t, the obstacles to gaining information and trading imposed discipline. Contrast that with today’s environment, with its constant barrage of data, noise, and hype, and the ridiculous ease of executing trades on a whim. It’s no wonder that people often sabotage their investment portfolio, either through unnecessary trades or, at the other extreme, paralysis from just being overwhelmed.

Discipline is absolutely needed when it comes to any endeavor. Can you imagine entering a marathon without months or even years of training and preparation? But, unlike exercise, dieting, and most other activities, discipline doesn’t necessarily have to be hard work when it comes to investing. 

Some of that discipline is already being provided through your employer if you have a 401(k) or 403(b) plan that auto-enrolls you in qualified investments. You merely have to take similar steps with the rest of your investments:

  • Set your life on autopilot. Set up automatic contributions into your IRA and other vehicles. Once you set it, forget it.
  • Sock away that raise. If you get a raise, consider increasing your automatic contributions. You got by the previous year without that money, so you may not miss it this year, but investing it will magnify your compounded returns.
  • Get off the sidelines. Looking to invest a bonus or inheritance? Vanguard research shows that, in most cases, you would maximize your long-term profits if you invest in one lump sum rather than spreading it out over time. However, some investors are too risk-averse to invest a lump sum. Investing smaller fixed amounts at regular intervals, or dollar-cost averaging, does not guarantee investments will make a profit, nor does it protect against a market downturn; however, the practice reduces the risk of bad market timing and potential remorse.
  • Have your fund rebalance for you. Rebalancing a portfolio is needed to maintain your desired risk level, but actively doing that periodically can be a chore. Further, it’s psychologically difficult to buy something that just went down in value. The solution? Consider a balanced fund that will automatically do the rebalancing for you.
  • Consider advice. My self-reliant father was comfortable managing his own portfolio. But, for some people, seeking advice is very appropriate, especially if they don't have the time, willingness, or ability to manage investments on their own. If your financial situation is complex or you just need one-time guidance, consider consulting a financial advisor who can provide support and keep emotional impulses in check. Just be sure to find an advisor whose fee structure aligns with your interests.

Investing versus gambling

Besides the concrete steps outlined above, there are psychological barriers that need to be addressed. Many investors fall into two extremes when it comes to their mindset, either too aggressive or too timid. Both need to be reminded that investing and gambling are different.

In gambling, the odds are stacked against you over the long run. And some investment practices and products approach gambling. Day-trading to time short-term stock movements is notoriously difficult over the long run. And the more exotic investments and strategies such as levered and inverse exchange-traded funds are designed for short-term trading, not long-term investing.

With a traditional balanced portfolio, the odds are about even on any given day that its value will go up or down, but the odds are stacked in your favor over the long run, as investors have been historically “paid” for the risk of price fluctuations in stocks and bonds. 1

Of course, all the appropriate caveats apply. There are absolutely no guarantees in investing. Markets will go through their normal up-and-down cycles and there will be times when your portfolio will decrease in value. That’s why it’s important to stick to your plan, remain disciplined and re-evaluate when your circumstances change.

My father passed away 20 years ago; however, his legacy lives on. His stocks helped with the down payment on my first home, and they are still providing dividends that help provide a comfortable retirement for my mother.

Discipline in investing has a lasting impact.

This commentary by James Martielli, head of Investment & Trading Services, originally appeared on Fortune.

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All investing is subject to risk, including the possible loss of the money you invest.

Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.