Investing's Rules of the Road
After a recent car trip I was asked, "How was the drive?" My response was typical for any Washington, D.C. area driver, complete with commentary on traffic and speed: "Traffic was great and I did 65 mph the whole way."
But was it really? I know the traffic was light because I experienced it, and I watched the speedometer, the most prominent gauge on my dashboard. But it turns out that I didn't do 65 mph the whole way. See, I've got this little computer in my dashboard that tells me the average speed for the whole trip that includes stops, local speeds, etc. My perspective was a function of the highway time, not the whole trip.
This is kind of like investing. What you see every day on CNBC or when you check your portfolio online compares to your speedometer. It's probable that your perspective on how things are going is based on recent observations of both the market and your holdings. However, once you take a look at the entire trip, reality can differ from your perspective. Here's how to make sure your financial ride goes smoothly:
1. Know your destination and how fast you need to drive to get there. Do research and have both a financial plan and an investment strategy. These two things should guide everything you do.
2. Focus on the overall speed of your entire trip vs. the speedometer. Your financial plan should tell you how fast you must move over time. You may benefit from speeding up or slowing down throughout the trip, but it's the average that's most important.
3. Realize when you are over the speed limit, and understand why it's dangerous. Going fast is fun, but braking is hard...and sometimes very sudden.
4. You may hit a traffic jam along the way, so decide if you should wait it out or have the GPS re-route you. Consult your financial plan. You may do more harm than good if you sell in a panic and then buy back into a market that is doing poorly. Patience is afforded by having a plan and a solid investment strategy.
Drive safe and arrive at your destination with plenty of time so you do not have a stressful journey and can enjoy yourself when you arrive.
David B. Armstrong, CFA, is a Managing Director and Co-founder of Monument Wealth Management, a full-service wealth management firm located just outside Washington, DC in Alexandria, Va. Follow David on his blog which can be found on his website, on Twitter at @MonumentWealth, and on the Monument Wealth Management Facebook page. Securities and financial planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. All performance referenced is historical and is not guarantee of future results. All indices are unmanaged and may not be invested into directly.
