- Mark Ivcevich
How are Roller Coasters & Investing Alike?
Of course we all know about the ups and downs that the market can provide to your investments. We experienced them in 2000, 2001 and 2002. We experienced them again in 2008 and 2018. Depending on how we define things, we experience them every year. Above I have just highlighted down years. On a roller coaster, that is the fun part, depending on fear level. In investing, those are the years that really test your risk tolerance. Those are also the parts that make our stomach feel like it is in our throats as the bottom drops out.
Now any good roller coaster also has many twists and turns and it has the steady click-click-click as you are being carried to the top of the ride. As you get higher and higher the view gets better and clearer until turmoil hits and then it becomes very difficult to see how you are safely going to finish the ride in a better place. To understand how investing and roller coasters are alike, we also have to consider the safety elements that keep us in our seats.
Most modern roller coasters have a seat belt, a lap bar or if they go upside down, they also have a harness that comes down over our neck. The tracks and cars are checked regularly and there are safety switches along the way. For investors, we can think of these as the tools we can take advantage of for a safer ride. Dollar cost averaging, diversification, and rebalancing. Taking our analogy a step further, depending on how wild of a ride I want to take, I can also dial up the height of that first drop and the volatility of the overall ride by balancing among a broad range of asset classes and across equity and fixed income.
For those closer to retirement, oddly enough they will be on the kids roller coaster that doesn’t offer the same highs and lows but still is fun for the whole family. For those who are years from retirement they can take on a higher volatility ride with high peaks and deep valleys because they can go faster but also withstand extreme volatility due to their time frame until retirement. Our job as an advisor is to make sure you don’t jump out of the car prior to finishing the ride otherwise we have a disaster on our hands. Investing & roller coasters have many similarities and a retirement plan participant just has to select the right ride that fits their needs.