Why You Should Think Of Investing As A Marathon, Not A Sprint

There are so many reasons why I love doing my radio show. One of my favorite parts of the show is when I get to answer people’s real-life financial questions. This past week, I got an interesting call from a listener named Chris.

Here’s the short version – Chris, a 45-year-old professional, was concerned about a move he made with his 401(k) investment strategy in the lead up to the election and Inauguration Day. Having heard rumors (as most of us did) that the financial bubble would burst in the wake of the White House change, Chris decided to rework his retirement account investment scheme. He shifted his money holdings to 50% in a more conservative fund and 50% in bonds.

The result? Chris ostensibly missed out on the recent heyday of the Dow Jones finishing up for eleven days in a row.

When Chris called, he was beating himself up for what he saw as a missed opportunity. Understandable? Sure. But did Chris really miss a big payout? In the grand scheme of things, the answer is no.

That’s because investing is much more a marathon than a series of sprints. Take a look for instance at the chart below that outlines trends of the S&P 500 Index over time.

Rome wasn’t financed in a day. Investing becomes impossible if you focus on the short term; investors grow their money by making smart decisions and by being patient. Realizing substantial growth in investment wealth in a short period of time is an anomaly, to say the least. So, even though Chris was “out of the market” for a few months, his investments are still in good shape.

Think about it. Chris won’t retire for another 15 or 20 years. What’s much more important to Chris’s financial health is how he manages his investments over the next few decades.

So despite his concern, my advice to Chris was not to make any rash moves to try to make up for missing the recent stock market boom. Being invested more conservatively during this upswing won’t affect the timing of his retirement, and it won’t materially affect how much of his funds he can withdraw in any given year. No harm, no foul.

And now’s not the time to jump back into an aggressive, high-risk asset allocation. Everything that rises must fall, and this adage is certainly true of the stock market. While no one knows when there will be a break in the action, we all know its coming.

For Chris, his best course of action is to wait for the market to consolidate (or dip), and then move his investments back to an allocation he can live with. It may mean that he shifts back to a strategy that’s closer to 80% stocks and 20% bonds. The critical takeaway for Chris was that he has time to grow his investments, so the key is to sit back, relax and get comfortable. After all, he’s got another 30 to 40 years to grow his investments. During that time, markets will certainly rise again.

If you’re looking for a solid standard for your long-term investment strategy, I’m a big believer in the 15/50 Stock Rule. The rule is simple. If you believe that you have at least 15 more years of living to do, your portfolio should be comprised of 50% stocks and 50% bonds and cash. Not only is this is a great method to strike a healthy risk/reward balance in your investment portfolio – it’s also a surefire way to comfortably weather the inevitable ups and downs of the stock market. So set yourself up for long-term success, relax and enjoy the ride.

Previous ArticleNext Article