An airport is a sophisticated operation relying on the latest and best technology. An airplane is an engineering marvel designed to travel among the stars and heavens. The technology used in the airline industry is advancing at the speed of a Boeing 787 with radar and instrument panels beyond recognition by the early pioneers of flight.
During my investment career, I’ve had the opportunity to work with several commercial airline pilots. These pilots have circled the globe flying all types of aircraft from the 747 to the Dreamliner. A former (favorite) client was one of the original pilots to fly the 747. He passed away last year and I miss talking to him about his love of flying. We often talked about the technological advances to the airplane over the years.
This past Sunday I was on a flight from San Diego to Houston and as I was waiting for the plane to take off the bright orange windsock caught my attention. I thought it was ironic we still rely on the windsock for wind direction and wind speed. Despite all the advances in technology we still can’t see the wind. The windsock is an invaluable tool to help us with wind direction and wind speed. A quality windsock cost about $50.
The windsock is a simple, but needed, instrument for pilots and airports. The windsock can help air traffic controllers guide pilots to the best and safest runway.
Investors depend on technology to help with investment decisions. Investment technology is increasing at a rapid rate and is used by all types from robo-advisors to high frequency traders. The level of sophistication available to investment firms, advisors and clients is unparalleled. The advances continue to propel the industry to great heights.
Do investors have a windsock? I believe they do. Individual investors actually have a few windsocks.
Windsock One. Planning. A pilot must file a flight plan to fly from San Diego to New York and all points in between. A pilot also uses a checklist before they taxi down the runway. The flight plan and the checklist are essential for a successful flight. A financial plan will help you navigate a path to financial freedom. Your plan is unique to you and can deliver you to your desired destination.
Windsock Two. Index Funds. The index fund may be the ultimate windsock. A simple structure that has helped investors generate market returns. The index revolution continues to gain loft as investors pour billions into index and exchange traded funds.
Windsock Three: Diversification. An investor who diversifies their investment holdings will avoid long term turbulence in their portfolio. Owning several investments will keep your portfolio aloft for a long time.
Windsock Four: Asset Allocation. Asset allocation and diversification often fly in the same formation and may even share a hanger or two. Asset allocation spreads your assets across stocks, bonds and cash. Allocating your assets to different types of stocks and bonds will help your account avoid a hard landing. By investing your assets in large, small, and international holdings your account will benefit from domestic and global growth.
Windsock Five. Fees. The lower your investment fees, the less drag on your portfolio. Do you like to pay high fees? I don’t. By controlling your costs, you’ll be able to keep more money in your pocket.
As we continue to depend on technology, do yourself a favor and keep your eye on the windsock. It will be beneficial to your investment success. As a note, I’m not a pilot but I’m a great passenger!
They shall mount up with wings as eagles. ~ Isaiah 40:31.
Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com
February 6, 2017