The Lazy River Approach to Financial Planning
Floating down the Clark Fork River in Missoula, Montana by raft or tube is a popular summer ritual or even rite of passage for new residents to the city. One would be hard pressed to call this a high adventure activity as the river flow throughout most of the summer crawls along at a snail’s pace much of the time. So this likely would fall under the category of a leisure activity.
However, there are intermittent periods of small rapids or even real whitewater waves that interrupt this casual flow. There is even a section with big enough waves to participate in river surfing (look it up). But at the end of the day, there is still great satisfaction and fulfillment from a leisurely day on the river with friends and family.
How this pertains to the investing world may or may not be obvious by now. The slow and boring approach to personal happiness and reward is also likely the best approach to investing that has been proven over time. Buying quality, well managed companies at a discount from what they’re worth and holding them for the long-term is rarely exciting. But utilizing that approach over many years will likely benefit your portfolio in terms of outperformance. It’s the frequent trading and turnover costs such as taxes, commissions, and reinvestment risk that can damage overall returns.
However, there will certainly be rapids that will test your assumption that this river float is actually a leisure activity and not a high-risk adventure. The double-digit decline in the S&P 500 in the Fall of 2018 comes to mind as well as the volatile COVID-19 related drop in March of this year. Not to mention the entire year of 2008. Yet panicking on a river or with your investments is never a good idea. Selling out during market retreats can be damaging to long-term returns as evidenced by many academic studies. In fact, volatility should be considered opportunity not risk as patient investment managers can take advantage of irrational down markets and pick up quality companies on sale.
The last analogy that may be the most important when charting unfamiliar or dangerous waters is having an experienced river guide with you. Expertise should not be taken for granted in a river, nor in the investment world. Fallen logs, swirling eddies, dangerous white water and unmaintained or unsafe rafts are all potential hazards when floating a river. Likewise, a financial advisor that maintains its core values and principals over time, continually looks for inefficiencies in the market, maintains a focused portfolio, while all along recognizing the importance of long-term compounding is just as crucial as an experienced river guide. Those characteristics have never been more important and relevant than they are today.
Tom Kerr, CFA
Senior Investment Specialist
WestPac Wealth Partners
Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Investment Specialist at WestPac Wealth Partners in Missoula, MT. Prior to WestPac he has held the roles of Chief Investment Officer, Director of Research, and Equity Analyst. Mr. Kerr has also been a contributing writer to TheStreet.com and RagingBull.com. Mr. Kerr is a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University. He serves on the boards of CASA of Missoula and the Montana State Parks Foundation.
On the weekends, he’s often exploring the great outdoors with his 3 sons and gathering content for his website 406dad.com . He is also a member of the Montana Snowbowl Volunteer Ski Patrol.