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Money Management

Travel, Traffic and Turbulence

April 18, 2006

It’s been a difficult three years for investors. For safe and secure investors, interest rates have been at historical lows. For more aggressive investors, most equities have performed poorly. How do we stay the course in these volatile times?

Travel

Planning your financial future is like planning a trip. Suppose you decide to drive across Canada to Halifax. You can get in your car and start driving east and eventually you will probably end up in Halifax. If you had a map, you could get their quicker and maybe even enjoy yourself. The same principle applies to your financial destination. Even if you have some idea as to where you want to go, a good financial road map should get you there faster with less stress and a lot less risk of failure.

Traffic

Sticking to your financial plan is like driving on the highway at rush hour. Many of us have gotten stuck in traffic. You’re in the right lane at a complete stop and it seems like the left lane is moving briskly. Your inclination is to switch lanes and the moment you get there, the lane stops and the one you were in starts moving. The fact is by picking a lane and sticking with it, you will probably get to your destination faster and even if you don’t save time, you’ll have less stress and fewer accidents. If there is an accident or another good reason to switch, you should definitely switch lanes. The same principal holds true for investing. Plans should be reviewed regularly and portfolios rebalanced to ensure you’re in the right lane. Aside from that, we should resist the temptation to switch.

Turbulence

Volatility or turbulence is the trade off in order to get where you want to go. Let’s say you want to go to Halifax. You can drive from Alberta to Halifax but it will take you 80 hours. Another option would be to fly, a faster and less expensive option. Half way through the trip your plane hits turbulence. Experienced flyers already have their seat belts buckled and shrug off the turbulence. First time flyers may panic and some would like to bail out if they could find a parachute. They may never make it to Halifax, but at least they believe they would survive. Investing is like flying, to get where you want to go you must put up with some turbulence.

*Many of the ideas were borrowed from Kim Butenbuis and Dan Richards formerly of Marketing Solutions.


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