Patience is an Essential Skill to Possess as a Successful Investor

Patience is an Essential Skill to Possess as a Successful Investor

All investors should exercise patience, because investing is a long-term game. Get rich quick schemes or easy paths to wealth are non-existent. Those in the role of financial advisor jobs will concur with this statement.

During times of market volatility, like in the present moment, investors must stay focused on the foundational principles of investing. This is one of the most important skills an investor can develop during extreme swings in the markets.

There are a handful of principles that those with financial advisor jobs recommend looking to during difficult times, such as:

Risk and Return

During financial advisor jobs, I often explain to my clients that each class of assets carries its own inherent potential for losses and gains. This can include both market volatility and the potential for permanent loss. To put it simply, if an asset is considered ‘riskier’, it is also more likely to carry a higher level of potential return on investment. The same is true in reverse, as assets that are considered ‘safer investments’ will often carry lower potential returns.

Displayed in the chart below is the relationship between risk and return across most major classes of assets.

Cash is considered to have negligible risk associated with it, however it also offers nearly no potential upside.

Government bonds tend to offer a slightly higher rate of return, though the value of bonds can fluctuate in the short term. At this point, however, no major developed nation has defaulted on the bonds they’ve issued.

Corporate debt offers a higher level of potential ROI, although corporate debt also carries a higher risk of potential default.

Commercial property or infrastructure that is directly held or unlisted can offer a higher potential return, though they can be higher risk, offer less liquidity, and are more difficult to diversify (unless using something like a managed fund).

Shares and equities offer a higher potential return on investment, though they are subject to volatility in the market and the potential for the company to file bankruptcy.

The highest level of risk to reward ratio is private equity investments, according to those with financial advisor jobs.

Above all else, the key point to recall is that each increase in potential risk tends to be equally compensated in potential reward. However, this is not always the case - for example, government bonds have seen poorer returns over the last year than shares.