By now, most of us have used driving directions apps such as Waze or Google Maps to get directions, a live traffic map and road alerts. What a great technology for traveling in congested areas. One of the great features of these new apps is their ability to help guide you through traffic to get you to your destination in the fastest way possible.
Normally traveling in the New York tri-state area, it is a must to have one of these apps guide you with the best possible route to your destination. With traffic starting to build after the recent shutdown due to the coronavirus, the value of these apps is becoming apparent again.
I thought about this recently when I was traveling from my home in northern New Jersey to visit my Mom out on Long Island. The app requires just one input: your ultimate destination. The app calculates the best route at that moment and tells you how long the trip will take.
I realized that what is not required to calculate the route is which traffic lane will you be using to get to the destination. The reason they do not ask for this information is because it does not matter in determining the time of your arrival. There is a lesson here for investors.
Once your personal destination is determined in terms of what your goals are, then you can invest your money using historical performance data to determine what is the expected return and thus, what your portfolio will be at some time in the future.
As you invest in various asset classes, there will be times where certain asset classes seem to be the fastest travel lane and times when the same asset class will be the slowest travel lane. Asset classes in general are stocks, bonds, and cash. Then, the asset classes are further broken down. For example for stocks, you could break down the ownership of companies (stock ownership) by the size of the companies as well as their geographic locations. An example would be investing in small European companies.
The key is to have the patience and discipline to stay invested in the various asset classes to capture the historical returns. Otherwise, just like when you are driving and you switch from one lane to another and then that original lane starts to move faster, that is likely to happen to the asset class that you will have just exited. Trying to anticipate the movement of the market adds anxiety and undue risk.
However, just like the traveling app, the key is to stay with the plan to capture the historical averages which will get you to the destination on time.
The only time that Waze adjusts the travel plan and possibly the destination time is when things occur along the destination route. If there is an accident causing a traffic tie up, then it will reroute you to get to your destination.
This is similar for investors. If things change in your life or the time that you will require money from the portfolio changes then adjustments to your route are required as well. Changing of the route in investing results in changing the amount invested in the various asset classes.
Work to determine what your specific destination is for your hopes and desires. Then work with an advisor to help you build the destination route that will result in success. Safe driving!
Hope you have a great week!
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