Help Me Retire Podcast - Episode 39
Stay in your lane
Show notes:
When it comes to investing... we’d all like to own what’s working...
Today, that might be AI stocks... and before you know it... it will be something else....
In today’s episode of the Help Me Retire podcast... why changing investment strategies too often can leave you frustrated... exposed to more risk... and farther from your destination....
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
Have you ever been stuck in slow traffic... and then watched the lane next to you move just a little faster?
So, what do you do? You switch lanes...
And then, almost immediately... the lane you just left starts moving again, and the lane you moved into... slows down...
So, you switch again... and then the same thing happens again...
And by the time you finally reach your destination... you see the car you passed half a dozen times along the way... pull into the parking spot you were aiming for...
You haven’t saved any time at all...
You probably made the trip more stressful... You took more chances... You increased the risk of an accident... And every time you changed lanes, the more frustrated you got...
That is a pretty good picture of what many investors do...
They begin with a sensible strategy... and it works for a while... but then a different strategy starts to look better.... Another lane appears to be moving faster... And so they move... they change investment lanes...
Then something else starts working... so they try that for a while...
Over time... they might realize they haven’t really been following any investment strategy at all... They’ve simply been reacting to whatever has worked most recently...
And more often than not... they jump into that investment strategy lane... just before it starts to slow down...
That can be a very expensive habit...
So, here’s the first thing you and I need to agree on...
There is no single best investment strategy...
Surprising, perhaps... but true... and many people believe that’s what a good financial advisor can do... identify the next hot idea... and get their clients in AND OUT of it... before everybody else...
I’m sorry to break this to you... but I will, because we’re friends...
That’s not the way it works... If that’s what advisors did... if that’s what was POSSIBLE to do... you would have heard of one by now...
The good news, of course... it that there are a lot of common sense, rational investment strategies that HAVE worked over long periods of time...
Growth investing can work... Value investing can work... Dividend investing can work... Index investing can work... A balanced portfolio can work... Even conservative, income-oriented approaches can work for people who need them... just like more aggressive approaches can work for the right people...
The trick is not finding the one perfect strategy...
The key is finding ONE sound strategy that fits your goals, your time horizon, your needs, and your temperament — and then sticking with that strategy long enough... to give it a chance to work...
Because every strategy has strengths and weaknesses...
Every strategy has good seasons and bad seasons...
And every strategy will, at some point, test your patience...
That is not a flaw... That’s investing.
Remember this: a strategy that works OVER time... will not work ALL the time...
Growth stocks may lead for years, then fall out of favor... Value stocks look old-fashioned, then suddenly start outperforming the market... Dividend stocks may seem boring when the market is chasing faster-growing companies... but go on to produce higher returns with less risk...
None of this means those strategies are bad...
It means there will always be times when they shine... and times when they struggle...
The problem comes when you abandon a strategy simply because it is going through one of those difficult periods...
That is when changing lanes becomes dangerous... because the temptation is always there... to switch to what is working now...
Today, we’re hearing a lot about artificial intelligence... AI may very well be a powerful long-term theme... It has potential to change the world... and in so doing... it is changing businesses, industries, and the economy in important ways...
But from an investing standpoint, the question is not whether AI is a big deal... it certainly is...
The question is whether investors are being drawn to AI-related stocks because they fit a thoughtful, long-term strategy — or because they have already had a strong run and now feel impossible to ignore...
That is not unique to AI.
AI is just the latest example of FOMO... the fear of missing out...
In the late 1990s... investors wanted technology and internet stocks. Diversified portfolios looked dull by comparison...
Why own a broad mix of investments when the exciting companies are going up in price every day?
Then the dot-com bubble burst... and many investors who had changed lanes late in the cycle learned that recent performance does not guarantee future success... sometimes just the opposite...
After the financial crisis in 2008 and 2009, the opposite happened... After losing half their value in a period of months... stocks felt dangerous. Many investors wanted safety above all else... and that’s understandable... it’s human nature.... A severe bear market can shake anyone’s confidence...
But some investors became so focused on avoiding the next decline that they missed the recovery...
More recently, as interest rates starting rising... cash, CDs, and money market funds became more attractive than they had been in years. There is nothing wrong with cash for the money you need to keep safe... but some investors started to wonder whether cash should become their long-term investment strategy...
Again, some of them changed lanes... at precisely the wrong time...
Not because cash is bad... Cash has a place in every investor’s portfolio...
But a good short-term tool is not necessarily a good long-term investment strategy...
The common thread is this: investors are often most attracted to a strategy... AFTER it’s already had its day in the sun...
They believe they are making a forward-looking decision... but in many cases, they are looking backwards... like trying to drive a car just looking at the rear-view mirror...
How’s that going to work out?
They are looking at what just worked... and assuming it’ll keep working...
And sometimes it actually does, at least for a while...
But all too often, by the time a strategy becomes obvious, popular, and widely discussed... most of the benefit is already be reflected in prices...
That doesn’t mean the strategy is wrong...
It means it may be the wrong reason — and possibly the wrong time — to abandon the time-tested strategy you already had...
Listen... if your strategy is struggling temporarily, that does not automatically mean it is broken...
It might simply mean you are in the part of a natural cycle where it underperforms for a while... and where discipline is required...
That is easy for me to say, but not so easy to do...
Because underperformance is uncomfortable... Nobody likes watching another strategy do better... Nobody likes hearing a friend talk about an investment that has done well while your own portfolio feels ordinary... Nobody likes reading headlines that make it sound like the future belongs entirely to some new theme, sector, or idea... and you’re missing it...
But I’ll tell you this: ordinary can be underrated...
A sound investment strategy does not have to be exciting... It does not have to win every short-term comparison... or even every long-term comparison... to succeed...
Your investment strategy does not have to impress people at a dinner party...
What it does need to be... is rational... It needs to be durable... It needs to be connected to what you are trying to accomplish.... And it needs to be something you can continue to believe in when it temporarily falls behind...
That last point may be the most important thing I’ll tell you today...
The best investment strategy for you is not necessarily the one with the highest theoretical return... It’s the one you can actually live with...
If a strategy is so aggressive that you abandon it during the next bear market, it’s not the right strategy for you...
If a strategy is so conservative that it can’t reasonably support your long-term needs, that’s not the right strategy either...
If a strategy sounds good in theory... but keeps you awake all night... there’s a mismatch... and it’s going to hurt you...
A strategy only works... if you’re able and willing to stick with it...
Now, that doesn’t mean you never make changes...
Your portfolio should evolve as your life changes... Your asset allocation may need to change as your goals, time horizon, income needs, or comfort level change... That’s normal... That’s prudent...
But that is very different from changing because of current market conditions... or because of what you think might happen next...
There is a difference between adjusting your plan... and abandoning your plan...
There is a difference between rebalancing your portfolio... and chasing the latest fad...
Rebalancing brings your portfolio back in line with the strategy...
Chasing... allows recent performance rewrite your strategy...
One is discipline... The other is reaction...
So, the next time you’re tempted to make a major investment change, ask yourself a few questions...
Has something important changed in my life?
Have my goals changed?
Has my time horizon changed?
Have my income needs changed?
Has my tolerance for risk genuinely changed... or am I simply reacting to what has worked recently?
That last question is often the most revealing.
Because if the only reason to make a change is that another strategy has recently done better... that’s not be a strategy decision at all... It’s just... changing lanes...
And the more often you change lanes, the more problems you create...
You may increase costs... You may increase taxes... You may increase risk without realizing it... You may bail on one strategy after a difficult stretch... and jump into another after a strong period...
And as a result... you may eventually feel more anxious... lost, even... because your portfolio no longer reflects a clear plan... And that anxiety... can lead to the next bad decision...
That is how investors can get caught in a cycle... a cycle that ends up repeating itself over and over again...
You make one reactive decision... It doesn’t work out the way you hoped... You get frustrated... Then you make a second reactive decision... to try and fix the first one...
And pretty soon, the real problem isn’t the market at all...
The real problem is now you... and how you’re making decisions...
Now, I want to share some really good news with you... it’s going to make you feel better... and probably become a less-stressed... more satisfied investor...
You don’t need to predict every turn in the market to be a successful investor...
You don’t need to identify the next hot sector to reach your financial goals...
You don’t need to jump from one strategy to another based on headlines... You don’t need to own whatever everyone else is excited about right now...
What you do need is a sound strategy that’s worked over time... You need it to fit your life... And then you need the patience to leave it alone and let it work...
That does not mean the ride will always be smooth... It won’t...
There will be periods when your strategy looks brilliant... There will be periods when it looks out-of-date... There will be periods when another lane is moving faster...
But if your investment strategy is based on sound principles... has stood the test of time... and still fits your goals and comfort level... temporary underperformance is not a reason to change...
It may be the price you pay... for long-term success...
So, the next time you are tempted to change investment strategies because something else is having its day in the sun... think about that driver weaving through traffic...
He looks busy... He feels active... He may even feel smart... in the moment...
But the calmer driver who chooses a reasonable lane... and sticks with it... often arrives in one piece... and right on time...
And maybe that ought to be your goal...
Not to own every winning investment...
Not to outperform the market... or your next-door neighbor... or your brother-in-law...
Not to jump into and out of every trend at exactly the right time...
But to choose a thoughtful path... stay patient through the slowdowns... and give yourself a better chance of reaching your destination with confidence...
And then, spend all that time and energy you saved... doing something a lot more fun...
Thanks for being with me today... on the Help Me Retire podcast...
We’ll talk again soon...
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
