Investors and the Marshmallow Test

Have you heard of the marshmallow test given to small children?

The test is used to determine children’s patience and the overall impact that patience may have on their lives.  How does that relate to us as investors?  Quite a bit – it turns out.

The marshmallow test, as it was later referred, was conducted by a researcher named Walter Mischel in the 1960’s.  He conducted an experiment with nursery school children.  One by one, he offered the children a marshmallow, cookie or pretzel with the following deal.   They could take one of the offerings now OR if they waited until he returned in 15 minutes then they could have an extra treat.

The experiment was in the choice given to the children.  Mischel then followed each individual group of children – those who waited and those who did not – as they matured, and he discovered that this trivial test had foreshadowed real life results.  For those children who waited for the bonus, they had more fulfilling and successful lives.  This success was measured by determining that this group had better grades, were healthier, had better professional careers and longer relationships.

Just startingIn turns out, that the ability to be patient has a large impact on the success one achieves.  The ability to delay gratification and be patient was profound.  Investors experience this choice as well as indicated by this common question:

Do you spend today or save for a better tomorrow?

 The ability to fulfill your desired future – especially looking at one’s retirement -requires delaying some immediate expenditures for this fulfillment.

 

It turns out that patience and discipline are just as critical to an investor’s ability to generate their required investment returns.

This marshmallow experiment was recently duplicated with an added feature which is also relevant for investors.  It seems that a critical factor for the children was the trust factor.  If the children first had a similar experiment with art supplies following the same protocol, but in this experiment the teacher failed to deliver the extra bonus after they had waited.  After experiencing a lack of trust, then the children did not wait for the extra bonus when presented with the marshmallow test.  Trust of receiving the bonus was critical.

Investors also need to have trust that the investment markets will continue to provide the returns that they have in the past.  The various posts that we have written and will continue to write on the strength of these publicly traded companies and the evolving technologies are meant to foster faith in your future and empowering you to have the patience and discipline needed to achieve your vision.

This also requires that one save for tomorrow even at the cost of fulfilling an immediate desire.  Work with an advisor who acts as a coach to help you have the patience and discipline needed for you to wait for your bonus of a retirement which allows you to maintain your lifestyle.  Believe that it is possible.

 If you enjoyed this article,  CLICK HERE to subscribe to free updates from “Roots of Wealth”.

About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

Subscribe

Enter your email address to sign up for free updates from Roots of Wealth and build a strong financial foundation! (we respect your privacy)

, , ,

Trackbacks/Pingbacks

  1. Strategies for Saving in 401k plans | Roots of Wealth - November 25, 2013

    […] These actions today will help you “Save More Tomorrow”.  This increase every year will help you take concrete actions to avoid a common fear – not being able to afford living expenses in your old age.  As my earlier post discussed, it is deciding that the future benefit is more important than the current consumption.  To read further on the benefits of delayed gratification read my post on the subject  Investors and the Marshmallows Test […]

Leave a Reply