A well-written article about the benefits of planning – including an excellent use of the Tour de France as an analogy for how to look at the market. Enjoy. — Aaron Puttroff, CEXP™, CFP®, CEO
If you’ve done much bike riding, you know that you’re going to get the occasional flat tire. It seems that no matter how carefully you’re watching the road ahead, you end up riding over that little screw that causes a puncture. But if you’ve packed a patch kit and tire pump, you can be back on the road in a matter of minutes.
It’s not surprising that racers in the more than 2,000-mile Tour de France also get their share of flats. The racing teams don’t just believe punctures are a possibility, they expect them to happen. And when they do, they are ready with a carefully rehearsed plan of action.1
The preferred option is to immediately switch out the rider’s bike with another one that is identical down to the smallest detail. If that’s not readily available, they can quickly trade out wheels. Or as a last resort, patch the flat by the side of the road.
With the winner of the individual Tour stages sometimes determined by seconds, the teams have thought through every possible delay and created a solution that will save the most time. Whatever happens, they have a plan in place to continue on the course.
This is a strategy that can also work well for investing.
As you contribute to your retirement account, your expectation is that your portfolio will grow continually. Over the long-term this expectation has built substantial wealth for millions of retirement savers. However, your financial journey will also see its fair share of flat tires, including periods where your portfolio stops growing or even shrinks in value.
When a market decline extends across days, weeks or even months, it can be very tempting to want to take a different course. Unfortunately, investors who give in to the urge to cash out, often end up missing out on unexpected gains.
Gerald O’Reilly, Co-CEO of Dimensional Funds, recommends that instead of trying to predict what the market will do, investors should plan what actions they will take for a variety of potential situations. He says, “What can happen is always a range of outcomes. And there’s all kinds of ways to mitigate the impact of a negative event.”2
In other words, be like the Tour de France teams who’ve thought through everything that could go wrong and already have a plan in place when they encounter a problem.
Sometimes market conditions require corrective action, but most of the time the prudent course is patience. Your trusted advisor has created a plan with the diversification intended to help protect against volatility but also the flexibility to adapt to changing economic conditions. He or she is an expert at guiding people like you through the ups and downs of long-term investing for a fully funded retirement.