Under the Influence – Investing Is Like Driving

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By Shawndi Purselley, CFP®, CDFA®, Owner and Co-Founder, Wealth Advisor

This morning while I was driving to the office, I watched cars move up and down the highway.  It reminded me of the various personalities I have come across in my years as a financial advisor.  There were drivers in the slow lane, the middle lane and some in the fast lane.  I also noticed that some drivers spent most of their time weaving in and out of the three lanes. I thought about each driver’s own personality and their risk tolerance for getting from point A to point B.   It made me think about how people invest their money.

I began to picture that the highway was a little bit like the world of investing and the people driving were like investors.  Each has their own tolerance for risk, comfort level, experience and final destination in their retirement planning journey.

Some investors invest like they are driving in the fast lane (the left lane).  The fast lane may get you to where you are going quicker, but it also involves more risk.  After all, you are driving your vehicle at a higher rate of speed.  In addition, if you aren’t sure where you are going and need to exit quickly, you are much farther from the exit and it may cause you to miss it altogether.  Let’s also not forget that switching lanes quickly can be very dangerous!

Some investors invest like they are driving in the slow lane.  They prefer a less risky approach to driving.  They realize they may not make it to their destination as quickly as if they were traveling in the fast lane, but they feel it is a much more comfortable and less stressful ride.

Then I thought about the middle lane drivers.  These people prefer to drive somewhere between the fast and slow speeds.  They understand the value of driving a bit faster and taking on a bit more risk in order to reach their destination at a more reasonable speed than those in the slow lane.  However, they are also not comfortable with the risk and stress of being in the fast lane.  These drivers mirror an investor who sees value in a well-diversified portfolio with a mixture of asset styles, categories and risk exposure.

What about the drivers constantly weaving in and out of traffic?  These are the emotional drivers and I relate them to emotional investors.  They make quick decisions based on a small amount of information, only thinking about what lane is going the fastest at the time.  These investors never think about the long-term impact of changing lanes.  Let’s face it, how often has one of these drivers passed by you, weaving in and out of traffic to get ahead, just to end up at the same red light TOGETHER?  I am going to be honest, there is something satisfying about sitting at the red light together with these drivers!

Last but not least, what about the drivers that are more concerned with what’s behind them than what’s in front of them?  These drivers are always looking in their rear-view mirror.  This type of driver and investor poses an obvious threat and distraction to the road ahead.  If investors spend too much time dwelling on the past performance of an investment, they may miss what lies ahead.  After all, we are often told that past performance is no guarantee of future returns.  So, what is an investor to do, and how does one navigate the highway of investing? The first step is to breathe, then seek the professional advice and help of a Certified Financial planner Professional.  Armstrong Purselley is a team of professionals with over 40 years of combined experience.  We help people just like you navigate through your dreams, ideas, and goals in order to help you reach your destination.  Please give us a call if you would like to discuss how we build financial plans and investment strategies to help you get where you are going.

*A diversified portfolio does not assure a profit or protect against loss in a declining market.

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