TGBA #8: Don't Get Sidelined: Run Your Own Race

Welcome to the 8th edition of?#theGoalsBasedAdvisor?Newsletter!?

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Learning the Hard Way

It was early March and I had run about 25 km.

But I had 5 km to go. This was the Around the Bay 30km race in Hamilton, Ontario. Many use it as the final warm-up for the Boston Marathon in April. This was my plan as well. As I was nearing the end, however, I turned a corner and there was a hill. Not a big hill. But it sure felt like a mountain after 25km.?

I had a plan and a pace that I was following. But, I looked around and saw others that were running faster up the hill. And, foolishly, I sped up. I “charged” up that hill. I got to the top － and then …?

I was out of gas. I literally had to stop and catch my breath. Not running fast. Not running slow. Not even walking. Standing still. A couple of minutes of gasping for breath. And only then I got going again. But it wasn’t the same. I made it to the finish line but that charge up the hill had cost me－in terms of time and how I felt at the end of the race.

The good news? I learned the hard way to run my own race.?

A few weeks later, I got to put those lessons to use in Boston. The first 20 miles went relatively smoothly and then I got to Heartbreak Hill. The hill itself rises only 88 feet (27 m) but coming when it does, when runners have exhausted their energy stores, is why it causes so much heartbreak. But I had learned from Hamilton. I ignored the other runners. I slowed down on that hill.?

I wasn’t fast, but I made it to the top of Heartbreak Hill with enough gas in the tank. Enough so that my last 5 miles were actually among my fastest of the entire race. Fast enough that I set a personal best. And I was able to finish 30 minutes before the bombs went off in that infamous Boston Marathon of 2013.

Running Your Own Race in Investing

What does this have to do with investing?

Everything.

Too many investors focus on beating the market or buying the best investment. They are not running their own race. Their race should be about what they are investing for－not what the markets are doing or what returns anyone else is getting from their portfolios.? What goals are they looking to fund with their portfolio? Retirement lifestyle? Kids’ education? A cottage??

After all, most investors would not look at a neighbour’s fancy Ferrari and think: I absolutely need to get myself one of those.

Sure, there might be a moment of envy; but it is soon replaced by a recognition that the neighbours' circumstances, priorities, and trade-offs are likely quite different.?

We need to do the same thing when it comes to choosing our investment portfolio. Understand our circumstances, priorities, and the trade-offs we will have to make. And choose a portfolio that can maximize our likelihood of achieving our goals. In other words, run our own race. And if we do that well, it doesn’t matter what the market does or what another investor, bragging at the backyard BBQ, has done.?

This is why investors underperform the market by trying to outperform it. As JP Morgan research reports, the S&P 500 has returned an annualized 7.5 per cent over the last 20 years. The average investor? 2.9 percent. This barely beat inflation (at then 2.1 percent).?

This behavior gap comes from chasing returns in good markets and panic-selling in bad markets. In other words, not running your own race.

Some investors can run their own race by themselves. Many should hire an advisor as their coach. A good advisor’s job is not to help a client beat the market. A good advisor's job is to help the client beat themselves. As I found out the hard way, it doesn’t help to charge ahead full steam if you are sucking wind afterwards.?

Helping a client truly understand their goal, showing them whether it is realistic or not, and helping them invest so that they can achieve it without losing sleep is what financial advice is all about.??

Meb Keflezighi, the 2004 Olympic Marathon silver medalist said: "I also realize that winning doesn't always mean getting first place; it means getting the best out of yourself."

Do you run your own race? In life and investing?