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The 5 Stages of Investing
Investing is like love, it takes commitment to make things work. Both have complex structures that people often fail to understand.
Just like love, investing takes time, loyalty, and patience and it passes through phases.
Psychologist Dr. Jed Diamond saw that there is a near-universal pattern of experiencing love and defined the 5 stages couples go through in every relationship. Similarly, investing follows the same path.
Stage 1: “Falling in love”.
The stage where hopes and dreams of lifelong companionship starts. This stage in Investing is “Goal Setting”. It is the starting point where life’s dreams are formed and the things needed to achieve these dreams are itemized. Optimism and enthusiasm are the characteristics of this stage.
Stage 2: “Becoming partners”.
The stage where relationship deepens and the couple becomes one. This stage in Investing is “Commitment”. Investing becomes a habit and the focus is on long term rewards rather than immediate gratification such as purchase of luxury items. Consistency and discipline are the characteristics of this stage.
Stage 3: “Disillusionment”.
As Dr. Diamond puts it, this is the “beginning of an end”. The relationship encounters difficulties and causes the couple to give up or become stronger together. This is the “Bewilderment” stage in Investing. Markets are unpredictable and chances are, it causes panic and results to untimely redemptions for those investors who are not financially and emotionally prepared. Meanwhile, those investors who understand the market’s volatility stay committed with the end goal in mind. Fear or fortitude are the characteristics of this stage.
Stage 4: “Creating Real, Lasting Love”.
Relationship wounds are healed with maturity and empathy, helping the couple face bigger challenges. This investment stage is “Deepened Understanding”. An investor develops the capacity to control emotions with objective thinking superseding subjective feelings. The investor is now able to appreciate the volatile market. Resiliency is the characteristic of this stage.
Final Stage: “Combining Two Forces to Change the World”.
Being able to understand each other and overcome challenges, the couple now uses their relationship as an example to help others. This is the “Encouraging Others” stage in Investing. While not everyone reaches this stage, this is the point where the investor becomes an advocate, shares the investment journey and encourages other people to start investing. Generosity and inspirational are the characteristics of this stage.
Comparatively, investing just like love is not a walk in the park. There will be challenges and roadblocks presented by market volatility. Time is of the essence and one must stay committed to be able to achieve set goals.
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