Stay the Course! Running Wisdom Applied to Investing for Retirement

In the great words of my high school cross country coach, "Just stay the course!" Whether we'd tired on a long summer run, or stayed up too late studying the night before a big race, his encouragement was always the same. The expression is both strong and beautiful: the strength is derived from all of the prior training; the beauty lies in its simplicity. Coach Boder was teaching us that the present, relatively minor challenges were no match for the combined efforts of a solid plan created in the past, and that fretting about it, or looking for a magic bullet fix, would only further drain us.

I think "stay the course" is most excellent advice for LMF4HMW readers with regards to their retirement portfolio investment strategies. The majority of you have many years before you reach retirement, and even those who are nearing the work force finish line will likely live another 20 years. (The average life expectancy for a woman born today in the U.S. is nearly 81 years; those of you who have made it to 65, a typicaly retirement age, are still likely to live another 20 years as you've gained strength over the years from jumping over a lot of life's hurdles.)

Why is 20 years so important? Jeremy Siegel of Wharton, in his book Stocks for the Long Run, points out that in 20 year rolling periods since 1926, stocks have beaten bonds and cash by a wide margin 98% of the time. This doesn't mean the waves aren't bigger; just that there is are 98 out of 100 reasons to set your asset allocation (division between stocks, bonds and cash) to a diversified collection (large and small; domestic and international) of stocks or mutual funds within your 401(k) and let it work for you, deriving strength from the method, and tuning out the noise.

For those runners or athletes out there, if you read research stating that those who took a day off per week were 98% more likely to beat those who trained daily, what would you do?!! If you were enjoying a day off and a taunting competitor called to tell you that there was a 2% chance he'd beat you given his daily runs, would you scramble out the door, or rest assured that you made a decision based on strength of prior research and are sticking to it?

There are two main challenges to adopting a "stay the course" mentality as far as retirement investment advice is concerned. The primary problem is noise -- currently, there is a vast amount of media attention dedicated to telling you that bad times are afloat, or worse yet, that they're already here. And implying that you should do something!!! It is very tempting to run scared in the other direction -- i.e., hide in the cash or bond corner or make a hasty reactive decision, with the doom and gloom mentality constantly bombarding you. (The fact that GDP -- gross domestic product and the primary measure of economic performance by many, grew in the first quarter of 2008 is somehow forgotten and ignored daily in favor of more important "news".)

Read the following sentence very carefully, twice: Even if we are headed for the dreaded downturn (that is, by the way, a normal part of the economic cycle, so we will eventually be there), the advice is remains the same: stay the course.

Why you ask? Because reactionary investing is not the answer. When planning for retirement, you set the training regimen ahead of time, not as you run along through the years. Runners don't randomly zig zag all over the city while training; they plan a course beforehand. And so should LMF4HMW readers when dealing with retirement.

Good runners accept that every day is not a best run; in fact, some are terrible -- we used to call them "crisis pace days" or "blow torch days". Instead of fighting them, we'd simply accept them, knowing that the path to increased speed isn't linear, and run through them despite the pain. Honed training involves managing the peaks and valleys of your athletic system -- accepting that you aren't going to be in the best shape for every race and choosing your wins based on the research and odds before you take to the course.

Just as a runner can use physiological research to manage her regimen, an investor can draw strength from financial research to stay the course. If we accept that economic downturn, "crisis" and "blow torch' days are a normal part of the cycle of growth, then we can at least derive strength from knowing that they're coming and having a plan to get through them. (Maybe it's heading out for a jog instead of worrying about it? Getting a mani-pedi? Reading Siegel, again.)

This brings me to the second main challenge when adhering to a "stay the course" retirement portfolio regimen -- it's both boring and frustrating. Psychologically, we'd be much more comfortable seeing our running times decreasing every race and our retirement portfolio increasing every period, even thought we know deep down that this is totally unrealistic. It's a lot less sexy to approach the challenging times with a mindset that instead celebrates the number of minutes you've spent training (especially those in bad weather), or the number of shares you've bought. And very tempting to do something in search of the magic fix.

My advice to you is the same whether it be as your running or retirement planning coach: go ahead and accept that your training or portfolio is going to have peaks and valleys. Embrace them. Derive strength in staying the course.

To celebrate strength of staying the course, today I'm making a toast to 20 years of patience by recommending a favorite style of wine: 20 Year Tawny Port. This citrus flavored, nutty libation with a long finish is actually a blend of different wines that have been patiently aging for many, many years -- 20 is the average age of the wines. Give it a slight chill for a refreshing summertime dessert.