Investing Lessons Learned on A Walk

Things learned on a random walk in the woods!

I had a goal when I started this year to lose 30lbs. Two of the reasons are in this picture. I want to be around to help guide my 3 kids 30 years from now. It is really important to me and the 30lbs was going to keep me from seeing that goal more difficult. For the record I am down 20lbs with 4 months to go. I will get to my goal because the reward of being healthier for my kids is so important to me.

Labor Day just passed and I took the time to take a walk in the woods with my kids. It was fun on so many levels and an eye opener. It’s always funny to listen to the conversations that the kids have. They have an amazing perspective that has been untainted by the constraints that society tends to put on people as they get older. They have the potential to do or become anything they want with their lives. So what did a walk in the woods teach them about investing.

The road less traveled is very difficult but is almost always rewarding!

Sacrificing today for your longer term success is very hard. Most people are unable to see beyond today to realize what they are truly capable. The picture on the right was part of the 3 miles we hiked. The kids were complaining because it looked difficult. I kept telling them that it will be worth it. I reminded them that everything of value in this world is earned through hard work.

Your investment portfolio is no different. Saving every single month and being patient throughout all market cycles is very difficult. But at the end of the road you will be able to enjoy the fruits of that labor and get the payoff of living your life of financial freedom.

Is the Reward Worth The Risk?

This was the view after hiking for about an hour. We took a difficult route that required some bouldering and came upon this awesome waterfall. Well the kids wanted to climb to the top of the waterfall. We looked around trying to find an easy path up to the top. Unfortunately, there was not an easy way but the only way up was to climb up the rock formation to the side of the waterfall. We talked about the potential risks i.e. Falling and decided since we didn’t have the right equipment (ropes) we decided the risk (falling) was not worth the reward (pretty view from the top of the waterfall).

Far too many people take too much risk in their portfolios because they don’t fully understand it. Markets go up and down that’s not the type of risk I am talking about. I am talking about people who are 35 years old and are sitting with 50% in bonds or cash. They are not in that allocation because they are saving to purchase a house or something. They are invested this way inside their retirement. The 35-year-old should be investing every month consistently into the market and watch how it compounds over the next 30 to 40 years.

On the opposite end of the spectrum I have seen 70-year-old clients with 80% of their portfolio invested in equities. The reason I have heard from them is that the markets have gone up significantly over the last 6-7 years and they wanted the higher returns. When I ask them how would you feel if we had another market period like we just went through in 2008-2010 I usually get the deer in the headlights look. Because the markets have been so strong over this bull market (2011-present) they have forgotten that there is risk that equities can go down. The potential downside (i.e. Market correction) may not be worth the reward (slightly higher average portfolio performance).

As we finish 2017 and begin to start planning for 2018 remember that now is a great time to reevaluate what you have been doing, assess its effectiveness and then decide what you want to do into the future.