Remember the marshmallow test? Thanks to a suggestion from our friend Zach Speert, we’re comparing the similarities of the marshmallow test with the benefits of investing. It’s similar to the super cute treat challenge that swept the interwebs recently. The marshmallow test was originally developed in the 1960s by Stanford psychologist Walter Mischel to study the effects of how patience and delayed gratification shapes us as humans.
“The marshmallow test is one of the most famous pieces of social-science research: Put a marshmallow in front of a child, tell her that she can have a second one if she can go 15 minutes without eating the first one, and then leave the room. Whether she’s patient enough to double her payout is supposedly indicative of a willpower that will pay dividends down the line, at school and eventually at work. Passing the test is, to many, a promising signal of future success” (The Atlantic).
While the findings and implications of the original marshmallow test are debated, we can say without any scientific expertise that similar to the marshmallow test, if you leave your money in an investment account and come back to it 15 years later, chances are you will have grown your assets. Let’s take a closer look.
So what can we learn from this? Three things:
Turns out one of the best lessons our parents taught us growing up was “patience is a virtue that cannot hurt you.” While waiting 15 minutes or 15 years may feel like an exorbitantly long time, it’s worth it in the long run for that extra marshmallow or that extra $2,642.
Investing for the long-term is the winner here. Waiting for that second marshmallow is like buying and holding stocks as part of a long-term financial and investment plan.
The pain of watching your $1000 temporarily dip is all part of the process. Even though it's difficult, you'll benefit more from staying in the market when times get rough. Think about that second marshmallow! Remind yourself that it pays to wait and have the discipline to stick to your financial and investment plan to ultimately bring in that dough.
Would you pass the marshmallow test as an investor? Can you be patient and delay gratification to reap the rewards?