Useful Analogies

One of the things I like about my profession is that there are so many analogies to help explain it. Of the many I've heard over the years, one of the recurring themes is sailing. You're on your boat sailing toward your future, the captain of your own destiny. Hopefully you have a plan, a compass, a good navigator, and so on. I just read a pretty good one and you'll find it below.

Analogies should come from what you know, and I've never been more than an armchair sailor, so most of mine come from ultrarunning. Some years ago, I caught the running bug and eventually found ultramarathons. Ultras are, technically, any distance beyond a marathon but typically start at 50-kilometers (31 miles). There can be ultras on roads or tracks but they're usually on trails. There are 50-milers, 100k's, 100-milers, and even longer races.

Strange as it may sound, preparing for and running an ultramarathon is just like planning for and living in retirement.

Running an ultra is all about planning and preparation, putting in the work during training, setting realistic expectations, executing on your plan, and then being able to call audibles as things change and the fates seem to conspire against you.

Preparedness takes on new meaning when you are miles from aid on a hot day and realize you're out of water. It's the simple things that will get you every time. Learning how to deal with the unexpected is critical and winging it isn't an option, nor is inflexibility.

After all the miles run in training you have little idea what the conditions will be like come race day. Yes, there's the weather report but you can still get pummeled by unexpected rain and wind. Or heat. Or cold. Or all of these on the same day. Maybe you're running along fine and then, wham, you're on the ground, the victim of a thumb-sized root you should have seen up ahead. Maybe you realize too late you started off too fast and now have many miles to go with an energy deficit. Or, perhaps you realize that you're simply ill-prepared for the task at hand. There are no shortcuts and ultras can be cruel judges.

Fundamentally, the lessons of strategy, diligence, and patience in prepping for and running an ultra are directly applicable to financial planning.

There can and will be lots of uncertainty in your plans for retirement. Your personal and professional life will change, and so will your goals and objectives. Markets will be volatile and scary. A host of issues, many of which you cannot control, will try to lead you astray. In an ultra, the saying is to "run your own race", meaning you need to plan based on your personal goals and not get caught up in the goals of others. The same goes for planning for and living in retirement.

So, having a good and flexible plan is critically important. By being flexible as things change and working diligently on controlling what can be controlled, you'll have the best shot at success, whether your goal is finishing a race or a enjoying a happy retirement.

For a nautical version of this concept, check out the following essay from Jim Parker, VP at Dimensional Funds...

A mistake many inexperienced sailors make is not having a plan. They embark without a clear sense of their destination. And once they do decide, they often find themselves lost at sea in the wrong boat with inadequate provisions.

Likewise, in planning an investment journey, you need to decide on your goal. A first step might be to consider whether the goal is realistic and achievable. For instance, while you may long to retire in the south of France, you may not be prepared to sacrifice your needs today to satisfy that distant desire.

Once you are set on a realistic destination, you need to ensure you have the right portfolio to get you there. Have you planned for multiple contingencies? What degree of "bad weather" can your plan withstand along the way?

Key to a successful voyage is a good navigator. A trusted advisor is like that, regularly taking coordinates and making adjustments, if necessary. If your circumstances change, the advisor may suggest you replot your course.

As with the weather at sea, markets can be unpredictable. A sudden squall can whip up waves of volatility, tides can shift, and strong currents can threaten to blow you off course. Like a seasoned sailor, an experienced advisor will work with the conditions.

Once the storm passes, you can pick up speed again. Just as a sturdy vessel will help you withstand most conditions at sea, a well-diversified portfolio can act as a bulwark against the sometimes tempestuous conditions in markets.

Circumnavigating the globe is not exciting every day. Patience is required with local customs and paperwork as you pull into different ports. Likewise, a lack of attention to costs and taxes is the enemy of many a long-term financial plan.

Distractions can also send investors, like sailors, off course. In the face of "hot" investment trends, it takes discipline not to veer from your chosen plan. Like the sirens of Greek mythology, media pundits can also be diverting, tempting you to change tack and act on news that is already priced in to markets.

Embarking on a financial plan is like sailing around the world. The voyage won't always go to plan, and there'll be rough seas. But the odds of reaching your destination increase greatly if you are prepared, flexible, patient, and well-advised. A lack of flexibility is another impediment to a successful investment journey. If it doesn't look as though you'll make your destination in time, you may have to extend your voyage, take a different route to get there, or even moderate your goal.

The important point is that you become comfortable with the idea that uncertainty is inherent to the investment journey, just as it is with any sea voyage. That is why preparation and planning are so critical. While you can't control every outcome, you can be prepared for the range of possibilities and understand that you have clear choices if things don't go according to plan.

If you can't live with the volatility, you can change your plan. If the goal looks unachievable, you can lower your sights. If it doesn't look as if you'll arrive on time, you can extend your journey.
Of course, not everyone's journey is the same. Neither is everyone's destination. We take different routes to different places, and we meet a range of challenges and opportunities along the way.

But for all of us, it's critical that we are prepared for our journeys in the right vessel, keep our destinations in mind, stick with the plans, and have a trusted navigator to chart our courses and keep us on target.

Have questions? Ask me. I can help.