Traffic Jams and Investing
What do traffic jams teach us about investing? That investing is infuriating and you have no control over how your investments do, especially because of buffoons making the traffic jam worse? Not exactly. While there are plenty of buffoons who affect our investments, buffoons don’t control our investments (unless you are one or hire one, which would also make you one).
Aside from patience and long-suffering, freeway gridlock can illustrate good ways to approach investing. Have you ever noticed the car that keeps switching lanes, trying to get into the one that is moving the fastest at that moment? I have seen that countless times, and when I was younger, before I had much experience sitting in traffic jams, also did that. However, when I started commuting to work longer distances on a regular basis I tested my assumptions. Rather than anxiously watching for the lane that was moving at 8 miles per hour rather than 6 miles per hour like my current lane, I tried picking a lane and sticking with it. I tried inside, outside, and middle lanes. What I found was that generally, if I just got in what is normally the fast lane, I fared just as well as the fidgety speed demon trying to maneuver in and out of lanes but with a lot less stress.
I take that same approach to investing. Rather than trying to constantly pick the best new stock or mutual fund or any other random fad, I look for a good mutual fund that I can get in and ride. It may have its starts and stops, but I will get there with less stress than the person trying to time the market and having done better than the person who also picked a lane and stuck with it but only chose a CD fund. (View the short video illustration below, by clicking its Play button.)
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The fast lane tends to work best, if you have a longer time horizon. Likewise, if you are going to get off the freeway at the next exit or two, it may be best to stay in the slow lane to make sure you don’t miss your exit.
There are different ways you can approach investing and freeway congestion. A lot of it has to do with your attitude. If you want to keep life simple, just jump in the fast lane and be patient as you work through the jam.
There’s my two bits, what about yours?
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I'm Michael Crowther, and I'm passionate about sharing the peace of mind that comes from budgeting, saving (including debt elimination), and investing.
January 29th, 2009 at 7:33 am
Two Bits:
I like that you are including visuals. This is helpful in trying to gain a full understanding. That is a good analogy. That is one of the reasons I moved away, all that traffic!! Or was it me switching lanes into a more fast paste money stream? oh well that did not work either. Slow and steady wins the race!!!