Running in circles (The Financial Athlete #63)

I am not a long-distanced runner. If I run, I’m chasing a ball or someone with the ball. I associate running with playing, not an exercise regimen. Recently, I asked a long-distance runner, “How do you keep motivated to run?”

He explained, “I don’t run in circles, around a track or a lake, unless I’m timing myself. My mind is not stimulated in seeing the same things over and over again. I like to run toward a destination and then back. When running is a journey, I’m invigorated.”

Many of us live our lives “running in circles”, preferring the comfort of a risk-free, known daily routine rather than explore new knowledge and experiences. Investors are also encouraged to “run in circles” with a mindless system of buy-and-hold, dollar cost averaging into the stock market, regardless of market conditions.

Granted, everyone should not be a stock picker. It is wiser for most to invest in index funds. But rather than set aside a monthly fixed amount into an index fund and hold until retirement, consider setting aside a monthly fixed amount (or better yet, a percentage of income) into a flexible portfolio. Adjust your portfolio according to market conditions. In a down market where P/E ratios are below the historical average and dividend yields are higher than the historical average, increase equities (stocks) in your portfolio. In an up market where P/E ratios are far above the historical average and dividend yields are much lower than the historical average, decrease equities in your portfolio.

This macro approach is simple and should outperform the average results from dollar-cost-averaging.

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