Broker Check

Plan Your Finances as You Would Your Exercise

| March 02, 2021

You exercise to benefit from your sweat equity in the future, right?

Waking up early in the dark mornings of winter to
exercise comes hard. Once your workout ends, though,
you often begin the day with the payoff of a tremendous
energy boost. Can the same process apply to your

If you’re like most people, you exercise for many
reasons but expect to benefit from your sweat equity in
the future, not just in the current moment. We will all
encounter health issues at some time and the medical
world assures us that we’ll deal better with problems if
we get – and stay – physically fit. Preparation matters.

So, what does exercise have in common with financial
planning and investing? The answer: Very few
individuals prepare to invest, except maybe when
selecting from choices in a retirement plan.

Or not: One study shows that in 2020 – in the teeth of
the COVID-pandemic and perhaps the most volatile
market year since maybe 2008 – most 401(k) retirement
plan participants made no changes to their contributions.

Exercise Helps Limit Our Injuries

Getting back to the fitness analogy, exercise’s greatest
benefits come from the stress we intentionally place on
our muscles so that when a health problem arises, our
bodies are in better condition to deal with the situation.
Regarding investments, if you choose to go it alone, you
need a methodical (and regularly visited) regimen for
taking in and processing market data. You also need a
strategy to accommodate unforeseen yet inevitable
future events, such as market downturns.

Don’t let random financial news clips guide your
decisions when determining how to act. For the record,
you need not re-allocate asset classes or otherwise
change your portfolio just because something in the
market changed.

You do need to be prepared to consider adjustments
when the information dictates that conditions shifted,
such as stocks increasing to a higher portion of your
portfolio than you want.

Your Planning Routine

We call this an investment policy statement or some
prefer the term “investment playbook.” The playbook
outlines your holdings and specifies how you intend to
respond to change with a disciplined approach aimed at
particular objectives – as opposed to the usually heated
emotions most of us feel in a suddenly rough market.

How are your holdings doing against benchmarks such
as the S&P 500 Index? At specifically what point will
market shifts make you re-allocate percentages of
stocks and bonds in your portfolio?

Your playbook also describes what you’re trying to
achieve as an investor – pay for retirement or for college
tuition, for example – and how you’ll react to market
changes. You might plan to sell or buy only if the S&P
500 hits a certain number or invest in oil if the cost per
barrel drops to a pre-set price. A well-designed playbook
keeps you from panicky decisions or from freezing up
during Wall Street roller coasters.

Your playbook needs to clearly document your
investment information sources, the technology involved
in your investing and why you bought a particular
investment. Remember: Great stock or mutual fund
opportunities may arise and shimmer, but if they don’t
match your playbook, you pass.

At the gym, you can wander among the clanking weights
or plan exactly how to invest your energy. You know
which method works better.

Investing is no different.