I commuted to Boston for six years when I worked for Thomson Reuters. Sitting in traffic allowed for plenty of time to contemplate the striking parallels between investing and commuting.
So every day I faced the following strategic decisions getting from North Andover, where I lived at the time, to Boston:
- Should I take the commuter rail or drive?
- If I were to drive, should I take I-93 or Route 1?
- While sitting in traffic, the other lane always seemed to move faster. Should I switch?
The Parallel Between Commuting and Investing
- The first decision is the tradeoff between time and comfort. The parallel in investing is the tradeoff between risk and return.
- The second decision is similar to strategic asset allocation in investing – which asset class is more attractive?
- Switching lanes often is like market timing.
Just as strikingly, I have found that the lessons learned from commuting are often applicable to investing.
- Just like market timing, switching lanes often doesn’t pay.
- You do need to be aware of large trends. When the big dig was going on, taking I-93 was not a good idea. It might seem like a no-brainer but passive investors, which make up 50% of us, frequently miss the big market trends.
By J. Helen Yang, CFA