Marathon Investing

Running a marathon with 30 or 40 thousand runners is chaotic – especially the start. When the gun goes off the crowd surges forward, so you better be ready to run or you’re going to get steam rolled. It’s pure emotion and adrenaline.

The first few miles are crazy as runners try to find a little running room. Runners are talking, high-fiving, and taking selfies and there’s always a young guy (always a guy) who’s sprinting at full speed.

At miles five and six the crowd starts to thin a bit and the pack catches the young sprinter. The talking declines and there are no more high-fives.

When runners pass the half-marathon mark there’s no more talking; it has been replaced with the rhythmic hum of running shoes bouncing off the asphalt. Marathoners now have plenty of running room.

Mile twenty is the wall. Runners are now in survival mode as they leave the teens and cross over into the twenties. This is a psychological and emotional barrier. After blowing through this imaginary barricade, the race is now a 10k – a distance marathoners have run thousands of times.

The final two miles are exciting. The finish line is nearing, and all training is about to payoff. Crossing the finish line to the roar of the crowd is an amazing experience. A few feet later runners are given their finishers medal, their new badge of honor.

Investing and running a marathon have several things in common. Day to day the stock market is emotional, chaotic, and unpredictable. It’s impossible to try to figure out how the market will move in the short term. Investors who try to time the market usually get whipsawed and lose money.

Over a five-year time frame the stock market is more predictable, making money for investors about 86% of the time. Extending the time horizon to ten years, it has produced gains 95% of the time. Over a twenty-year period, the stock market has never lost money.[1]

The Vanguard 500 Index Fund has lost 6.34% for investors during the month of October. In the short term, it’s performing poorly, but if we extend the time horizon to 5, 10, and 15 years the results are much better. It has produced an average annual return of 11.55% for five years, 13.95% for ten years, and 8.80% for fifteen. Had you invested $100,000 in this fund fifteen years ago, you’d have $391,192 today.[2]

Runners set a goal to finish a marathon. Investors who want to succeed should also set goals. Short and long-term goals are paramount for you to track your progress. A financial plan will help you quantify the things that are most important to you and your family. Do you want to take a trip? Buy a second home? Create a foundation? All these items, and more, can be part of your plan and moving towards your goals is more important than the day to day movement in the stock market.

Seasoned marathoners rely on tools and technology to help them with their training runs. Watches, heart monitors, fit-bits, etc. record every step. Runners adjust their pace or training methods as needed. They use big data to improve their results. Investors don’t rely on technology as much as they should or could. Today, there are numerous software resources to help investors improve their results.

To become a successful investor, follow the path of a good marathon runner: set goals, take it a day at a time, monitor your performance, adjust as needed, follow your plan, keep your eyes focused on your goals, and think long-term. If you do these things, good things will happen.

The marathon is not really about the marathon, it’s about the shared struggle. And it’s not only the marathon, but the training. ~ Bill Buffum

10/24/2018

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

[1] Ibbotson®SBBI® 2015 Classic Yearbook.

[2] Morningstar Office Hypothetical Tool