Economic Outlook - June 2022
6/3/2022 8:00:00 AM
The supercar driving experience is just what it sounds like – it’s like driving go-karts, but the vehicles are much fancier, faster and cost more. The first part of the process for getting behind the wheel of a supercar is to sit through classroom training about driving fast and positioning the car properly to enter and exit turns on the race course. Then, a professional driver takes you out to the track for a ride-along to become familiar with the course. The first lap of the ride-along is at half-speed. If that doesn’t put the fear of God into you, the second lap at three-quarter speed usually does. After the ride-along laps, you receive a set of keys to the car of your choice – Ferrari, Lamborghini, Audi, Porsche, etc. – and out on the track you go, with a professional driver in the passenger seat to expand on your classroom training for driving fast. When I participate in an event like this with a couple of my buddies, I want to pass them and win.
As you might imagine, math and physics go into maximizing speed and keeping the car under control and on the track. The best way to win the race is to be patient, stay within the car’s capabilities and creep up on the drivers in front of you one lap at a time. If a driver becomes impatient, they may go into a turn faster than they should. Excess speed causes the car to slide upon reaching the apex of the turn, resulting in lost momentum, lost control and a healthy dose of humility (not to mention fear). That one moment of impatience – going beyond the car’s capabilities and losing the time it took to regain control – put me in last position. My immediate desire to race ahead of the pack resulted in me being in commanding lead … of last place.
When things are going well in the markets, investors often have a “risk on” attitude, which is a fancy term for investors having a more aggressive allocation than would normally be associated with their personal investment profile and long-term goals. The idea of “risk on” allocation is to get ahead faster, but when the market punishes risk with elevated volatility, it is the investment equivalent of going into a turn too fast and losing momentum and control. It also tends to hurt investor psychology.
The best way to succeed in investing is to follow these five “rules of the road”:
- Be disciplined about saving.
- Use dollar cost averaging, which means investing regularly in good and bad markets.
- Remain within the boundaries of your personal investment profile.
- Be patient, and use time and compounding as your ally.
- Remain focused on your long-term goals.