The importance of thinking in decades when you invest

TL;DR: The value of any investment is heavily tied to its long term prospects. You can’t make an intelligent investment without considering potential impacts over a multi-decade timescale. The exercise of thinking about the value of your investment 10, 20 or 30 years from now will help you to crystallize how you think about its future prospects. If you’re not willing to hold it for a decade, then don’t hold it for a minute.

In recent years banks have stopped issuing mortgages on properties in certain parts of Florida, specifically the low lying coastal areas that are already or soon-to-be below sea level. The banks are looking at the rate of sea level rise and figure that those properties will be underwater – literally – before the 30 year mortgage they issue gets repaid. You can imagine what the might do to property values.

This simple example is a great illustration of the importance of looking at investments from a multi-decade timescale. Most of the value of a given asset is likely derived from the long tail of future expected value it will create. If that future gets cut off or abruptly changes, then it can have a dramatic impact on the value of that asset. Even things that might not affect an asset in near to mid term can have a major impact on asset value.

It’s hard to think in decades (or centuries!). Most of us aren’t wired this way. We’re more concerned with what dinner will be like tonight than with what things will be like in 30 years time. When we’re young, 10 years feels like a lifetime. It’s hard to think about the future in any concrete terms. 30 years ago was 1988… the internet was barely a thing, cell phones were the size of shoe boxes, and the Sony Walkman was the pinnacle of portable music players.

But just because it’s hard doesn’t mean we shouldn’t try. One of the 9 investment rules I live by is that I don’t want to own something for a minute if I’m not comfortable owning it for a decade. My ideal holding period for an investment is forever. This approach is critical for any type of investment, but becomes even more critical if you’re going to invest in real estate. As noted above, you won’t have the property paid off for 20 or 30 years. A lot can happen in that time. As you think about investments, consider what the long future will hold, and if you’re protecting your downside that way, the power of time and compound returns will take care of the updside.

Good luck in your journey!

Ramen-san

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