Why We Need To Hold Out For The Big Reward

Some people might feel that Singaporeans love queuing. Whether it is getting in line for the latest limited edition of Hello Kitties or the latest iPhone, Singaporeans want to be the first to get them. This behaviour is an example of instant gratification.

Instant vs Delayed Gratification

Instant gratification stems from the inner desire to want something right now while delayed gratification simply means that you resist the temptation for an immediate reward for the pleasure of being able to have something bigger or better later.

In actual fact, almost everyone has already practised delayed gratification to a certain extent. As a student, there would have been times that you set aside television time for studying, and as an adult, setting aside leisure time for work.

A growing body of literature has also associated the ability to delay gratification to a host of other positive outcomes, including academic success, physical health, psychological health, and social competence. One of the famous research studies conducted is called the “Stanford Marshmallow” experiment.

The Stanford Marshmallow Experiment

marshmallow experiment

The Stanford marshmallow experiment, which shed light on the long-term results of a person’s ability to delay gratification – was conducted by Walter Mischel in the 1960s and 1970s. Mischel presented four-year-olds with a marshmallow and told the children that they had two options:

(1) Ring a bell at any point to summon him and eat the marshmallow now, or

(2) Wait until he returns 15 minutes later to earn two marshmallows.

The message was: “small reward now, bigger reward later.”

Through the experiment, Mischel found that children were able to wait longer if they used certain “cool” distraction techniques like covering their eyes, hiding under the desk, singing songs, or imagining pretzels instead of the marshmallow in front of them.

So what about it? What difference does a marshmallow make? Plenty, it seems as according to the follow-up evaluation when the children became adults. Those who waited demonstrated a striking array of advantages over their peers such as higher SAT scores, self-worth, and better able to cope with stress, more likely to plan ahead, and more likely to use reason.

How it applies to Investing

In our modern society, temptations are almost everywhere. Under the influence of the media, everyone desires to have designer bags, sumptuous restaurant food, or even a new car and it becomes the norm as a so-called higher standard of living. However, if you are spending all the money away to enjoy the present, soon you will run out of cash for your future, your retirement.

Each one of us needs to set aside your “Vitamin M” now in order to receive more of it in the future. For example, saving and investing a mere $2,700 a year for forty years in an STI tracker would net over $1.1 million.  This was achieved with a 7% compounding rate. A 7% compounding rate may sound too good to be true, but it is achievable. In fact, the Straits Times Index (SGX: ^STI) tracker, the SPDR STI ETF (SGX: ES3), has gained 8.43% per year over the decade ended 30 November 2014. You just need the patience and to keep the concept of delayed gratification secured in your head.

Foolish Bottom-line

Many people understand the importance of delayed gratification. But it is one thing to understand it, and quite another to practice it. It isn’t easy to have the discipline to put aside the money and ride though the ups and downs of investing. Here are some tips that could help.

  1. Be clear on what you want and know how important it is to you – Having a clear understanding of what you want to achieve longer-term can help you make a choice in delaying gratification to help you reach your ultimate goal.
  2. Create a Plan & take Small Steps along the way Depending on what you want to achieve, it may take weeks, months, years, and sometimes even decades. Breaking down your goals and rewarding yourself along the way can remind yourself that delaying gratification is leading you to where you want to go.
  3. Prioritise – Being able to prioritise what is important to you and what you want to achieve helps you make the choice to delay gratification.

Finally, a simple question to ask yourself would be: “Do I want the hard work and the big reward, or do I want to take the easy route?”

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