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The investment world is fast-paced. Information travels at the speed of light from one capital market to another, keeping asset prices and portfolio values in perpetual motion. Financial news sources like CNBC treat the markets like a sport, filling their hours with gimmicks like “halftime reports” and league tables of stock pickers and fund managers. The presentation may be entertaining, if you go for that sort of thing, but it can also be detrimental.
Don’t let the short term razzle-dazzle get in the way of smart long-term decision making. Retirement planning isn’t a sprint, it’s a marathon. Marathoners don’t win races the same way sprinters do. Know the difference, so your asset strategy can go the distance.
Starting Out: Set the Right Pace
Marathon runners start races by setting a pace they will be able to manage over the miles ahead. They are not concerned by the hot shots in vividly colored shorts who race ahead of the pack in the first mile. They know that there are 25 more miles to go.
Setting the right pace doesn’t mean starting slow or being overly conservative. Quite the contrary. When you are in your 20s and early 30s, you have a long time horizon, so you can extend your risk frontier into more aggressive, growth-oriented asset classes like small cap or emerging market equities.
Smart investors do this in a way that keeps their portfolio suitably diversified and not unduly exposed to narrow risks. And they don’t chase returns, knowing that what has been hot for the last three months has no bearing on what will perform best over the next decade and beyond.
Heartbreak Hill: Patience and Discipline over the Long Stretches
Runners call it “hitting the wall”. It’s that feeling when your body starts to shut down and all you want to do is collapse on the ground. Pushing through this part of the race requires discipline. Runners endure mental and physical training for months before a big race so that they can cope with “the wall.”
Investors can hit the wall too – maybe after a crushing market crash, a job loss, or uncertainty about your goals. Successful investors get through the tough stretches by sticking to a few basic actions. They rebalance their portfolio every year, if not more frequently. They periodically evaluate assets to make sure they’re invested in the best funds. They re-weight their allocation as retirement draws closer and their risk tolerance changes.
When these actions become second nature – when rebalancing is as much an annual event as planting seeds in the spring or planning the Thanksgiving menu – you’ll be in better shape to push past the wall.
The Home Stretch: Don’t Forget to Breathe
Runners in the annual New York City marathon know they’re in the final stretch when they enter Central Park. But they still have more than a mile to go before it’s all over. Sometimes, though, their adrenaline goes into overdrive when they enter the final stretch. This impedes the regular breathing they need to maintain through the finish line.
As your retirement day approaches, your emotions may get the better of you. Retirement means changes in your lifestyle, which may be liberating or terrifying. You might feel you haven’t prepared well enough. You might start second-guessing the goals that guided your portfolio decisions over the years.
Relax. Breathe. If you treated this like a marathon from the beginning and stayed the course, you’ll be cruising over the finish line and into the next stage of your life with everything you need.
Where are you in the retirement marathon? Tell us what you think.
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