With the Fourth of July holiday just days away, we’re in prime time for summer vacations. Several studies have projected that most people will spend the equivalent of three weeks’ pay while on vacation. And nearly sixty percent of those vacations will be road trips, which should bode well for Michigan. I just hope that our out-of-state guests don’t conclude that the orange barrel is our state emblem.
I was recently struck by the similarities between investing and preparing for a vacation. The concern for vacationers is the weather. For investor, it’s the financial climate.
The Federal Reserves has recently put the chance of recession at thirty percent. Surveys of businessmen say that the chance is more than fifty percent, and within the next 12 months.
But, like the weather we just never know what lies ahead. Our economy has been in growth mode for so long, it’s well beyond the historic time frame for a downturn. But memories of the 2008 Great Recession are still fresh in many investors’ minds.
At some point an economic downturn is inevitable. Despite all the surveys, predictions and forecasts, we just don’t know when. But investors can learn a thing or two from vacationers.
Investors are often fickle and abandon their investments when the markets sneeze. It’s a fact that people who move in and out of investments seldom get it right on both ends. They may get out at the right time, but optimal timing of the re-entry is very rare.
Rather than selling high and buying low, too many do just the opposite. Not a very profitable way to invest.
It’s a different story with smart vacationers. I remember a trip to Disney World years ago with my family. The weather forecast said there was a minimal chance of rain. Needless to say, it absolutely poured. But we were prepared and had our rain ponchos on in a matter of minutes. While many patrons scrambled for cover, we kept right on having fun.
The lesson for investors is simple: Be prepared for any kind of financial weather. Picnics aren’t cancelled because of a thirty percent chance of rain. Trips aren’t altered because there might be some bad weather in a few days. Smart vacationers just prepare for all types of weather.
True, it may occasionally be necessary to alter their immediate plans, but seldom do people cancel a trip because of a chance that something might possibly occur.
People plan their vacations, they save for their vacations, and if it becomes necessary, they adapt. But they generally stick to the planned itinerary. Investors should take the same approach. Don’t invest as though every day will be full of sunshine. Because financial storms are inevitable, you need to act like smart vacationers and be prepared for whenever they do strike.
I believe some people spend more time planning their vacation than they do their financial future. Many investors have no financial goals.
Rather than following a financial road map, they simply wing it without any defined strategy. If you prepare your finances for that rainy day, I believe you are more apt to handle and survive a downturn in the economy.
In the meantime whatever you have planned for the Fourth, I wish you a safe and enjoyable day.