There is a humorous scene at the beginning of the movie Office Space where the characters are all stuck in traffic on the freeway. The main character, Peter, notices the line of cars next to him moving so he decides to merge to take advantage. Of course, as soon as he merges, his current row stops and his former row now begins to move. This process repeats itself until he looks up and realizes that an old man with a walker on the sidewalk is now much farther along the road than him. There is a lesson here about investing and personal finances that should be somewhat obvious.
The easiest parallel to draw with regards to investing is when investors get their timeframe confused. Most people reading this are long-term investors. Success or failure is measured in years and decades. Yet we all pay attention to the day to day. If we flip that around, imagine how ridiculous it would be for a professional day trader to look at economic forecasts stretching years? It simply does not matter for their timeframe. There are quite a few financial advisors who have the chart of the stock market hanging behind their desk to remind clients about the long-term potential of stocks. No matter how many times we are reminded of that, we shift our eyes to worry about the next couple weeks or months.
Once we get our timeframe set, what else veers us off course? The equivalent to peeking at your friend’s test to see how they answered. It is perfectly natural to see what someone else is doing and want to emulate them. This could be anything from a hot stock that a coworker are talking about to a bigger house that a friend just bought. The problem is, we only see the surface visuals and not what’s underneath. That coworker boasting about the stock that is making a killing conveniently leaves out the handful before that got chopped in half, causing him to lose his shirt. That nice house also comes with a hefty mortgage and property tax bill. What matters to an individual is unique to their situation. Outside information only serves to distract.
Whether it is the scene from Office Space or the fable about the tortoise and the hare, the idea of slow and steady winning the race is known by everyone in theory, but hard to apply in practice. We all know what wins the race to retirement: save, diversify, compound. Boring. Like the tortoise, boring wins. If you find yourself switching lanes too often, it helps to have an objective point of view. We stand ready to help you stay the course.
Author: David Rath, CFA
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