If you were planning to run a marathon a year from now, how would you prepare? Most reasonable people would agree that training for any endurance event consists of “putting in the miles”. Successful participants log hundreds of hours on the road to build up the volume of miles necessary to complete the race. Experts would recommend a total training volume between 1500 miles and 2500 miles would be sufficient to allow the average runner to complete the 26.2 miles of the marathon without difficulty. But how and when you perform those training miles matters too.
One approach would be to delay tying up your shoes until the last couple of months or even weeks before the race and logging heavy miles day after day until the event. This cramming method might allow you to make it to the finish line eventually, but the whole experience will likely be so painful, you might consider never running again.
A second approach might be to start now, but only run on days when the weather is good. However, as weather is unpredictable, your training will likely be comprised of scattered active days followed by several days of inactivity. During spells of good weather you might be required to make up for lost time by adding on extra miles. The likelihood of reaching your weekly and monthly mileage goals is low if you allow your plan to become derailed by the elements and conditions. The end result of this method is generally being unprepared for the marathon.
The most successful strategy for preparing for a marathon is to set out a training plan consisting of regular training days with a predefined number of miles for each run. Regardless of the weather, your mood or other distractions, slip on your shoes and pound the pavement. Through good times and bad you run as planned, no more and no less.
Investing for your retirement is very similar to marathon preparation. You set a target date when you want to slow down or stop working entirely and establish a dollar amount you need to see you through retirement (I recommend you work with a trusted financial security advisor to determine this figure). Then, you start to contribute to your retirement savings plan on a regular basis without distraction. However, just as in marathon training, there will be distractions that will threaten to derail your plans.
Like marathon training, saving is not always fun. For all the times when there were more enjoyable things to do than run for an hour before going to work, there will be other enticements for spending your money. You may face other obligations that prevent training at the end of the day, just as there will be immediate needs competing for your investment dollar. Since you have to run harder later to make up for a mile missed today, you need to save even more for money not invested now.
Like lousy weather, there will be market fluctuations to discourage investing, even to the point of tempting you to pull out and wait for better times. A good investment portfolio includes a proper balance of assets to minimize volatility, but nothing can prevent periodic decreases. However, being out of the market and trying to “time” when to jump back in will only reduce your potential gains. Markets don’t go up in a straight line. Gains often happen quickly and are hard to predict. Similarly, the weather on a running morning may start out crummy, but by 8:30 can be clear and sunny but you’re already on the way to work. Too late!
To participate in market rallies, it’s important to stay invested. Missing even a few days of market growth can reduce portfolio returns. Missing the 10 best days on the TSX from Jan. 1, 1991 to Dec. 31, 2010 would have reduced your portfolio by 4.11 per cent (Source: Yahoo Finance and Morningstar Research Inc.). If you needed $1 million in retirement, passing up that 4.11 per cent gain will require saving an additional $41,100 to reach your goal.
“Slow and steady” may not necessarily win the race (as the old adage tells us) since winning does require great swiftness that may be possessed by very few, but that consistent approach will lead you to your long term financial objective. As Lao Tzu suggests, “the journey of a thousand miles begins with a single step” (followed by many, many more steps) therefore funding your retirement starts with the saving and investing of a single dollar followed by many, many more dollars consistently.