Celebrate the spirit of Marathon

Standard Chartered Mumbai Marathon 2016 - 17th January 2016.

On this day, we salute the spirit of all marathoners.

We wrote an article in 2008 comparing "investing for life goals" with running a marathon. This was published on www.moneycontrol.com on January 25, 2008.


Here is the link to the article: Life is a marathon - here's how to plan for it

This article was written in 2008, hence some reference might have changed. However, the theme of the message remains the same.


Read the full article below:

Life is a Marathon – Here’s how to plan for it

2008-01-25 11:56:19 Source : moneycontrol

While planning for your life's goals, it is important to remember, this is not a 100-meter race, it is a marathon. While 100-meter race is run for the speed, a marathon is all about endurance and stamina.

Come January and the Mumbai city is ready for one of the greatest races on the earth, the Standard Chartered Mumbai Marathon. This year is the 5th anniversary of the race. While a lot has been written about the fitness aspect of the race, let us look at the learning that an investor can take from the race.

While planning for your life’s goals, it is important to remember, this is not a 100-meter race, it is a marathon. While 100-meter race is run for the speed, a marathon is all about endurance and stamina. While one uses all the strength to acquire the speed to finish the 100-meter dash, one has to keep balance between how much energy one uses and how much one conserves.

Conserve your energy

If one starts running too fast in the beginning, one may take an early lead but may not have the energy to complete the distance. We all need money to live and enjoy our lives, but life does not end in days. One needs to have enough money to last beyond one’s life. And hence, while spending money is a need, saving for old age also is a very important need. It is the balance one needs to strike between enjoying life now and ensuring safer future. It is the balance one needs to strike between current expenses and future needs.

Extrapolation

Running 100 meters at a particular speed is a different matter, but maintaining the same speed for 42 kilometers is a different thing altogether. Let us say one can complete a 100 meter run in 12 seconds (while this is much slower than the world record, it is quite fast for an amateur runner).This does not mean that one would be able to complete a kilometer in 120 seconds (i.e. 2 minutes) or the 42 kilometer marathon in 84 minutes. For most amateurs, completing 42 kilometers is a huge challenge and that is why in the Mumbai marathon, those who are not professional marathon runners opt for 21 kilometers at the most.

Extrapolation is quite easy while one is on a calculator, but it is a totally different thing while on the ground. Same is the case with one’s investments. While one may have a good run for a year or two – or at times even longer like in the present scenario. It is foolhardy to expect such a run to continue for long stretches of time and hence while planning for one’s future, it is always better to assume more reasonable future returns from one’s investments.

Run light

Most professionals advise one to wear light cloths and light shoes. One is also advised not to carry any load in form of water bottles or any such thing. Any excess weight on the body affects one’s ability to sustain the strength required to complete the race. Back in the world of investments (or life goals), the excess weight is nothing but various liabilities; medical, social or financial. Your liabilities mean that you need to maintain liquidity in the portfolio to meet the obligations and that means the portfolio cannot run fast – one needs to give up some upside that can come through investment in high risk investment options.

One could be better off getting rid of most of the liabilities – especially those financial in nature. Investments in risky options to generate higher returns could become dangerous if one has outstanding financial liabilities (loans). Some of the medical liabilities could be covered through insurance.

One kilometer at a time

The thought of running the full distance of a marathon (or even a half-marathon) is quite intimidating for most amateurs. However, if the total distance is broken in small parts and small goals are set, the whole journey becomes a series of small challenges. Life’s goals also may seem intimidating at first, and the amount required for the long term goals may also look huge, but if one invests systematically and allows the investments to earn the benefits of “power of compounding” and “rupee cost averaging”, the goals become quite achievable.

Running up the slope

For those familiar with the geography of Mumbai can understand how difficult it would be to climb up the Pedder Road fly-over especially on the way back after running for over 14 kms in the half-marathon race. The beauty is in the perspective. Remember that the climb up the fly-over is followed by a climb down it. While you spend more energy running up the slope, coming down is a much easier part. It is the same in the world of investments also. Generally, an asset class, be it equity or real estate, that may go down substantially, has the potential to rise up also very fast. And that is where the old adage goes: higher the risk involved, higher the expected return.

Get into the rhythm

Everyone will have a different speed at which one can run – whatever the distance. It is the rhythm one needs to get into, that allows one to cover the long distances. In the world of investments, the rhythm could be akin to one’s ability to assume risks associated with various investment options. As long as one invests money in line with one’s ability to withstand the price volatility or the uncertainty, the journey becomes smoother. And as mentioned earlier, the rhythm will help one achieve the goals.

The investment plan needs to combine one’s risk taking ability along with the requirement to achieve the goal within the stipulated time. In the investment parlance, this is known as asset allocation, i.e. dividing one’s money across various investment options. Asset allocation is considered to be one of the best-known investment strategies to help an investor achieve the investment goals without giving unnecessary hiccups along the way.

Enjoy the journey

While one’s objective is to complete the race and to that extent the goal is at the end of the distance, it is the journey that one needs to enjoy. Any discomfort or unhappiness will make it difficult to achieve the goal. If the investment portfolio is giving one sleepless nights, it would be a better idea to change the components of the portfolio or redo the whole plan. Even if one believes that the end justifies the means, the investments are made to achieve life’s goals and hence life is more important than the investments.

Wish you all a very happy, healthy and wealthy 2008!

- Amit Trivedi

The author works with a leading mutual fund company. The views expressed are his personal views