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Caution: Treacherous Investing Ahead

If you have driven almost anywhere in the eastern half of the U.S. recently, you probably have faced some treacherous driving conditions. We certainly have had our share of snow and ice this winter, and the news is full of stories about helpless drivers just “along for the ride.” The comical-but-frightening videos got me thinking about some fascinating parallels between winter driving and managing our investments.

The story that really grabbed my attention was a piece on the national news in which the reporter took some winter driving lessons at a local training academy. The instructor demonstrated the natural reaction of a driver who suddenly encounters a slick road: hit the brakes hard and, as the car starts to get off course, try to correct by turning the steering wheel. As I’m sure many have experienced firsthand (I know I have), the result is a feeling of sheer panic as all control is lost. The instructor went on to demonstrate the correct response, which is much more difficult to pull off: keep your foot off the brake, don’t touch the gas and keep the car pointed straight ahead. These actions give you the best chance of regaining control quickly and making it through to the other side unscathed.

Of course, we don’t always have the luxury of riding it out. Sometimes we hit the brakes to avoid another vehicle. Or maybe we’re approaching an intersection and the light has turned red. In these cases, the driver might lose control because he or she has not adjusted to the conditions at hand. Driving in snow or ice requires skill and experience, but above all it requires patience. Approaching turns with caution, keeping a safe distance and maintaining an appropriate speed are all essential to maintaining control. The journey may take a little longer, but you – and your passengers – will be glad you took your time.

Investing is much like winter driving, but few investors recognize the similarities. Many lack the patience to invest for the long term, looking to build quickly through risky, often complex investments. They might not know just how risky these investments are until the markets turn, and they find themselves out of their comfort zone. At the first sign of a skid, reflexes take over and they hit the brakes (get out of the market) or crank the wheel (change tactics) in an often futile attempt to regain control.

A good financial advisor is like that driving instructor on the news. We help investors maintain control in a couple of important ways. First, by developing a patient, deliberate approach to investing that avoids the pileups and spinouts, but keeps the wheels moving forward. Second, by acknowledging that sometimes the skid is unavoidable, but a calm, controlled response provides the best chance to keep a handle on the situation.

As the calendar turns to March, we can expect the snow and ice to be gone soon, and driving conditions to return to normal. In the stock market, however, treacherous conditions are the norm and patience, poise and control will always serve you well.

Kevin Fix