top of page

The Marshmallow Test

Join our founder, Steve, as he looks at the benefits of delayed gratification and patience when it comes to investing.

The Stanford University Marshmallow experiment was carried out in 1972 by psychologist Walter Mischel. They placed a child in a room for 15 minutes with a soft, fat and comforting marshmallow placed before them. With nothing but the room, the table and the temptingly sweet and delicious marshmallow to concentrate on they were told that if they lasted the whole 15 minutes without eating the marshmallow, they would get 2 marshmallows!

Do you remember how long 15 minutes feels as a 4-year-old? It’s… eternity! With nothing to do but stare at that marshmallow and dream of its pillow-esque texture on your tongue and sweet flavour bursting over your taste buds, it must have felt like two eternities! Is it any wonder that many of the children stuffed that sweet treat straight in their gob and smiled happily as they did so? Grinning from ear to ear as the marshmallow tried to evade its fate.

But, some of the kids managed to wait the whole 15 minutes, and their treat then lasted a lot longer. Double bubble! Two of those little beauties were then devoured.

The test was a study on delayed gratification. They wanted to ascertain at what point the ability to wait to get something that someone wants, develops in children.

Over time, there were follow-up studies that showed that the children that were able to wait 15 minutes for the extra marshmallow tended to have better life outcomes as measured by:

· SAT scores (a US educational achievement measure)

· Educational attainment

· Body Mass Index – nope, they weren’t fatter for eating 2 marshmallows!

Further follow-up experiments were conducted using cookies or pretzels. These found that just having the rewards there made the delay of gratification even harder to achieve. In fact, results even seemed to show that simply NOT THINKING about the reward enhances the ability to delay gratification and receive the benefits this bestows.

Mischel and Ebbesen noted, "[some children] covered their eyes with their hands, rested their heads on their arms, and found other similar techniques for averting their eyes from the reward objects. Many seemed to try to reduce the frustration of delay of reward by generating their own diversions: they talked to themselves, sang, invented games with their hands and feet, and even tried to fall asleep while waiting - as one successfully did.”

Why is this important to an investor? The returns of a globally diversified portfolio of some of the greatest companies that have ever existed do not come in a uniform and predictable pattern each year. We need to be patient. We need to accept that superior returns to a bank account are only going to be achieved if we are able to delay gratification.

It is important to live now, but it is important to understand that not utilising some of your money now, means you can use more of it in the future to have a great life then too. The following are not acceptable to us:

· Great Life Now – Sad Life later

· Sad Life Now – Great Life Later

The only acceptable outcome is:

Great Life now – Great Life Later

The real subject of this newsletter is not delayed gratification, it is:


Patience seems to be in short supply these days. We rush from one thing to the other, doing things as speedily as possible. We treat each other snappily, to avoid getting into time-wasting conversations to get home and order our Deliveroo or bung a dinger meal in the microwave. We wolf that back as if it is our last meal and then, devour a few episodes of a box set or, I know what salacious gossips you all are, Love Island.

Why do we do this? Life moves fast and we have a lot we need to do and achieve. So much so, that if we thought about everything we had to do, we would barely get through the day! Each of us makes upward of 35,000 decisions (Eva Krockow, University of Leicester) a day. Every Day. Is it any wonder that we have developed some short cuts to make life easier? These short cuts / rules of thumb are known as ‘heuristics’.

Heuristics and the hard-wired inability of humans to delay gratification without mental anguish, lead to us making mistakes, sometimes small but not insignificant, sometimes massively wealth-threatening mistakes.

We do not want these mistakes to happen to you! So, if you recognise any of the following in how you are feeling or behaving, then take this as some solace: you are not alone! But, also, that you need to take appropriate action and stick with your plan…

Recency Bias

Investment markets have been ‘down’ for around 18 months – you think that they will never come back in value. Recency bias is a cognitive bias that refers to the tendency to give greater weight to more recent information when making decisions. In the context of investing, this can manifest as a tendency to overvalue or undervalue an investment based on its recent performance.

For example, an investor may be more likely to buy a stock that has recently performed well, or to sell a stock that has recently performed poorly, without considering the longer-term trends or fundamental factors that may influence the stock's future performance. This can lead to suboptimal investment decisions.

Long term, global investment markets reached their highest point ever around the end of 2021. This has happened before and will happen again. Long term evidence shows that stock markets will temporarily decline and then return and surpass former peaks. That last 18 months are perfectly normal.

Have patience and do not change anything unless your life plan has changed.

Inflation and Interest Rates

Inflation rates in the UK are being stubbornly resistant to the rise in interest rates which is the preferred remedy for this affliction. Globally, inflation is falling much faster than it is in the UK. As interest rates rise, so the lure of a bank account with 5% per annum interest rates seems alluring. It is, until you realise that what you would actually be doing is guaranteeing a loss in purchasing power.

· Inflation in June 2022 – 9.4%

· Bank interest rate (generously) 5%

· Real terms loss – 4.4%

Can you feel your ‘recency bias’ twitching here? Your investments have declined a few percent over the past year. You still don’t know what they are going to earn in the future and that 5% figure feels great! Why? Because over the last 12 years 5% has been an awesome interest rate. Previously, they were 0.5%! But, times have changed… interest rates were 0.5% because inflation was 1-2%. No more.

You like the certainty of that 5% though, even though it is a guaranteed loss. So you want to cash in your investments, though you don’t know what you will get in returns in the coming year. It ‘feels’ a good thing to do. Your investments have only gone down, right? You don’t know what you are going to earn from those investments. But that’s a good thing! Why? Because you have a chance of beating inflation. Historically, shares are the only assets that consistently beat inflation.

Dimensional Quick Take: Will inflation Hurt Stock Returns? Not Necessarily

As you can see, 2022 was one of the few years where there was high inflation and poor stock market returns. But this is the exception. Think about it… for inflation to persist, there must be money coming to pay the higher prices that are the result of inflation. For this to occur, companies must be making the profits to raise the salaries of their employees to meet these higher prices.

22 of the past 30 years saw positive stock market returns after inflation had been accounted for. Positive returns AFTER inflation.

What can you do to help?

Stop looking at your portfolio and get it tested

A Lucent Financial Plan is well crafted and historically back-tested over 100 years of data. Anything that is happening in the world now that could affect investment performance, has happened to a much worse extent during that period.

As with the marshmallow, those children that looked at the treat found it more difficult to forget about it. They were more inclined to take action and thus end up with less. If you are looking at your investment returns regularly, without understanding them, you are that kid! Looking makes it harder to ignore, makes you worry and become frustrated and therefore less patient.

Wouldn’t you like to know for sure what your pension and investments are actually doing? Wouldn’t you like to know when you can actually start stuffing your face with marshmallows without worrying about whether you can or not?

Reasons to be patient with us

As we have seen, these days it’s hard to be patient. But patience is the winning game. You will note from social media how people display their achievements as if a snap of one moment in time is what all the hard work has come down to. Behind that, there is most likely to be thousands of hours of work. Or, the post is a load of BS or lies.

Rest assured, we have done thousands of hours of hard work. Our team have put the effort in to:

· bypass their own heuristics.

· seek the evidence of historic investment returns to avoid the recency bias.

· understand what is most likely to come to pass, but also understand there is no certainty in investing. If there wasn’t that uncertainty, then there would not be higher returns.

· pass the exams and keep up with the CPD to ensure knowledge is as close to 100% as can be.

· learn how to explain this to you, whilst trying to avoid bafflement and prevent you from making massive mistakes.

Inevitably, but unknown to us when, the stock markets will bring inflation-busting returns again, and we want you to be prepared and in the best position to have taken advantage of this.

A little bit of news that might help cheer you along, but means nothing under our philosophy:

The S&P 500 is in a Bull market, this is defined as a 20% increase since the previous lowest low in October 2022. The Bank Of America research into stocks market rises after the start of a Bull Market indicate it rises 92% of the time after that. Normally, a stock markets rise 75% of the time in a year.

If you're interested in finding out more about investments – email us on: saying: "Give me Ubuntu!"

We will then send you a link to our online community, Ubuntu, where you can find out more about investing and how Lucent help people. We think you’ll like it!

If you'd like a taster of the impact we have on our clients' lives, take a look at a couple of our Google reviews:

"I can honestly say I wish I’d done this years ago! The Lucent team are great listeners and really look to understand what your personal life circumstances are and adapt their advice around this. Also, this is no ordinary financial planning company, but they offer wraparound services that cover well-being into their service. Genuinely part of their family." - A Mann

"Four years ago Lucent showed me clearly my financial situation and created a financial plan that they shared in simple terms which enabled me to retire. Four years on that plan has held firm and when I get my state pension in twelve months the plan will be complete. All I can say is thank you Steve and the team." - R Harry

If you're ready to come for a chat, give us a call on 0121 705 1000 to set up a no-obligation meeting with one of our fantastic advisers. We can't wait to meet you!


bottom of page