How does investment and indexing relate to nature?

This is not the first time I have thought of nature to associate it with certain investment themes.

A few years ago, we did a post where we related a tree to a forest to explain compound interest.

Recently, while reading Morgan Housel, whom I have been following for years and whose book I have previously recommended, I was again reminded of the connection between investing and nature when he discusses the concept of Quiet Compounding.

Nature is not in a hurry, but it achieves everything

The article begins with a quote from Lao Tzu:

“Nature is in no hurry, yet it accomplishes everything.”

This quote reflects Lao Tzu‘s Taoist philosophy of patience and the natural flow of things, suggesting that great achievements are attained unhurriedly, naturally and steadily.

This reflects how impressive natural phenomena such as giant sequoias and mountains form slowly but impressively over time. This concept of slow and steady growth can also be applied to the process of accumulating money.

The idea of quietly accumulating money is powerful. We often hear stories of people with modest jobs who, over decades, manage to amass significant fortunes simply by saving and investing consistently, without bragging or comparing themselves to others.

These people keep their finances to themselves, focusing on their own goals and not on what others think. This approach allows them to be happier and more satisfied with their financial achievements, as they are not caught in the trap of constant comparison with others.

Silent capitalization is like nature

The article suggests four key principles of “silent capitalization”:

  1. Focus on your personal goals: Ask yourself what financial results would make you happy if no one else could see or compare them.
  2. Accept your personal differences: Accept that what works for you may not work for others and vice versa.
  3. Prioritize your independence over social appearance: Use money to improve your own life rather than to impress others.
  4. Focus on long-term resilience: Instead of worrying about short-term comparisons (and results), focus on the ability to withstand volatility and trust that things will get better over time. As we demonstrated, focusing on the long term and low costs are the two steps to success in your investments. The former is seen in the graph below, where we see how as the period lengthens the probability of losing cancels out:
CTA Fondos Indexados (ENG)

Indexing and nature share fundamental principles

Indexing and nature share fundamental principles that teach us valuable lessons about growth and investment:

  • Slow and steady growth: Like trees that grow slowly but reach impressive heights, an index-linked investment grows steadily over the long term, mirroring overall economic growth.
  • Diversification: A healthy ecosystem depends on a diversity of species. Similarly, a portfolio of index funds encompasses a wide range of assets, diversifying risk and increasing stability. Diversification allows asset allocation to be optimized.
  • Resilience: Ecosystems are resilient and able to adapt. An indexed portfolio is resistant to market fluctuations through diversification, adjusting automatically to changing conditions.
  • Efficiency: Natural processes are efficient in their use of resources. Index funds minimize costs and fees, making them an efficient option for investors.
  • Patience: Nature teaches us the importance of patience. Investing in indexes takes time, allowing compound interest and growth to generate long-term returns.

Indexing is an investment strategy that, like nature, shows us that steady growth, diversification, and resilience are key to long-term success.

The power of following an indexed plan

In short, true financial power lies in the ability to accumulate and grow quietly and steadily, without rushing or being aware of what is happening to others or to the markets, focusing on one’s own personal goals and values.

These are aspects that we defend on a recurrent basis at inbestMe and indexed management (following the markets in a “natural way”) is one of the best ways to achieve this in a systematic, unhurried but constant way. You will see your assets grow just like the tree in your garden or in the nearest park: looked at separately, they are all equally beautiful and unique.

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