3 Things Investors Can Learn From Forrest Gump

Post on: 16 Март, 2015 No Comment

3 Things Investors Can Learn From Forrest Gump

In the classic film, Forrest Gump, the main character of the same name, played by Tom Hanks, takes us on a journey through middle to late 20th century America, touching on many historical occurrences in a nostalgic and thought-provoking way.

For some viewers, its a way to relive the past. For others who may not have been around during that time, the film may have been their first look at some of the events that shaped our countrys history.

But as a financial planner, theres one scene that sticks out in my mind, because it relates so closely to investing: when Forrest runs across the country.

For those who either havent seen the movie or need a quick refresher, in one scene, Forrest just decides to start running and doesnt stop. During that sequence, he says he ran for over three years, crossing the country multiple times. Thats a lot of running.

With that, here are a few lessons from Forrests journey and what they teach us about how to save consistently over time, despite market inconsistencies.

1. Forrest started somewhere. If youre running a long distance, you dont delay your endeavor because the weather is just a little too cold one day. You just jump right in and start. There are going to be a lot of too cold or too hot days along the way. Thats not the point. The point is that by putting one foot in front of the other, he got it done.

As in any long-term venture, you have to start somewhere.

Despite some volatility, now is not a bad time to get into the market. Its not going to be much different today than if you got in a week or month from now. But what youll find is that if you wait a month or two, it may turn into waiting a year, and then two years. All of the sudden, you find you missed an opportunity to get your money to start working for you earlier.

Sometimes starting is the hardest part. But once you do, youll find making it a practice becomes easier.

2. He ran with purpose, not a finish line, in mind. He ran for the sake of running. He wasnt trying to set any records or cross a finish line.

With planning for retirement, yes, you want to have an idea of how much youd like to have put away, and when you can actually retire. But the point is that if you save as a habit or practice, it will be much more effective than trying to chase short-term financial goals, all so you can say you have a certain amount of money put away right now.

And since your money has to work for you even after you retire, there is no finish line in investing.

3. Its tough to manage long-term investments with a short-term view. So, how does what weve learned from Forrests run translate into the real world? Lets look at the time between 2000 and 2010 as an example.

This lost decade saw its share of financial troubles. Over this period, the Standard & Poors 500 index returned just 1.4 percent, annualized. If you look at that data point alone, its easy to think there was no value in investing your money in the market. Or, put another way, there was no reason we should have started.

But if you give it a closer look, looking at the Barclays Capital U.S. government intermediate-term index and S&P 500 index, youll find someone with a broadly diversified portfolio (60 percent equity and 40 percent bond) realized a growth rate of 7.8 percent annualized over the same time frame.

The takeaway here is not that investing is a bad idea, but investing without thinking through the proper asset allocation is a bad idea.

Again, someone who invested consistently actually did pretty well, as long as they werent chasing any preconceived short-term goals. As Forrest paced himself and ran when he could, he made progress and kept going. He wasnt worried about his time.

Heres a case where looking at both short-term factors and long-term goals let this group of equity and bond investors realize a great return when others were barely getting by.

The short-term matters to the extent of an investors need to rebalance a portfolio, and in this case, missing some potential profits.

But a long-term investment approach needs to be used alongside short-term rebalancing to yield the best results. And what works over time is a solid, consistent approach, which doesnt chase market highs or bail out when things start to tank.

So if youre thinking now is the time you want to take a lesson from Forrest Gump and start somewhere, there are people who can help. A certified financial planner can get you going on the right path as youre at the starting line and aid you on your journey all the way through the finish.

Run, Forrest, run!

Greg Ostrowski is a certified financial planner practitioner at Scarborough Capital Management , who helps clients with financial planning and investment management strategies. He says that helping investors stick to their plan and making adjustments based on long-term goals rather than reacting to the market, will result in stronger portfolios. Ostrowski lives in Annapolis, Maryland.

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