What Can Olympic Athletes Teach Us About Investing?
Every four years, the world gathers to watch the Olympic Games and marvel at the incredible feats of athleticism and the awe-inspiring dedication of the competitors. Whether your favorite event is gymnastics, swimming, or track and field, the athletes who compete all share similar traits that go beyond physical ability, such as discipline, mental toughness, and a willingness to delay gratification.
The success of ‘Investing Legends’ like Peter Lynch—author of “One Up on Wall Street,” who achieved remarkable long-term returns during his tenure managing the Fidelity Magellan Fund—underscores the value of patience and persistence. Lynch famously advised investors to "buy what you know" and to stay the course, even during market turbulence. His philosophy is one that mirrors the long-term dedication of Olympic athletes.
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Interestingly, these very qualities offer valuable lessons for investors. Just as Olympic athletes prepare rigorously for years leading to their events, investors can cultivate similar traits to navigate the complexities of the financial markets and help them stay the course toward their big payoff.
Mental toughness is a hallmark of Olympic athletes. For years, they endure grueling training schedules, cope with the pressures of competition, and often bounce back from significant setbacks or injuries. This resilience is directly applicable to investing, where market volatility can test an investor's resolve. Just as a runner might get off to a bad start but remain focused on the ultimate goal, investors need to withstand market downturns without succumbing to panic.
For instance, during the 2008 financial crisis, the stock market experienced dramatic declines. Investors who maintained their composure and stuck to their long-term investment strategies often saw their portfolios recover and grow in the subsequent years. This mirrors an athlete’s mindset of not letting a single stumble or defeat derail their entire career. Instead, they assess the situation, make necessary adjustments, and continue towards their goals.
Discipline is another crucial trait of Olympians. They adhere to strict training schedules, maintain rigorous diets, and consistently put in the effort required to achieve peak performance. As it relates to investing, discipline manifests in the form of regular contributions to investment accounts, adherence to a diversified portfolio strategy, and avoiding impulsive decisions based on market hype or fear.
Consider the concept of dollar-cost averaging, a disciplined investment strategy where an investor contributes a fixed amount of money to their investment portfolio at regular intervals, despite market conditions. This approach reduces the impact of market volatility and encourages a long-term perspective. Much like an athlete who trains daily regardless of the weather or their mood, disciplined investors who consistently invest over time position themselves for long-term success.
One of the most profound qualities Olympic athletes possess is their willingness to delay gratification. They forgo immediate pleasures, such as social activities or unhealthy and indulgent foods, to focus on their long-term goals. This principle is equally vital in investing, where the temptation to chase quick gains or react to short-term market movements can be detrimental to long-term success.
For example, the practice of investing in a retirement account, such as a 401(k) or IRA, requires investors to set aside funds that they will not touch for decades. The benefits of this strategy are evident in the power of compound interest, which Albert Einstein is credited with referring to as the “eighth wonder of the world.” By staying the course and allowing investments to grow over time, investors can accumulate significant wealth.
Olympians train for years, often decades, to achieve their dreams. This long-term commitment is a crucial lesson for investors, who must also adopt a long-term perspective. The stock market, much like an athletic career, is defined by a series of highs and lows. Investors who remain patient and persistent avoid the temptation to chase short-term gains and are often rewarded over the long run.
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Malcolm Ethridge, CFP® is an Executive Vice President and fiduciary Financial Advisor with CIC Wealth Management, based in the Washington, DC area. He is also the Managing Partner of Capital Area Tax Consultants.
Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
Disclosures:
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