Don’t Avoid the Switchbacks
- Jun 8
- 3 min read
We’ve all heard ‘slow and steady wins the race’ but that advice is difficult to follow in many aspects of life. Shortcuts are often taken in the hope of reaching a goal just a little bit faster. The success of one shortcut leads us to believe others will be as successful. We’re prone to do the same with our investments.
Those who frequently take shortcuts often place themselves in dangerous positions.
The Pacific Northwest is full of beautiful hiking trails of varying difficulty. Some of the more strenuous trails take you to great heights and reward you with vistas of snow capped mountains. Gaining the summit provides the well-earned feeling of accomplishment and success. .
Reaching your investment goals provides a similar feeling of great satisfaction.
Neither is easy to achieve. Perhaps that’s what makes it so rewarding.
Mountain hikes and financial plans are full of opportunities to take shortcuts. Those shortcuts offer a chance to leave the trail and cut across the landscape in an effort to reach the summit quickly. Nowhere is it more evident than a switchback.
It seems reasonable to take an available shortcut when you’ve been climbing up that mountain for so long in an effort to reach the summit. Why not climb up that 60° incline to arrive on the same path above where we currently stand? We justify that twenty steps at a steep incline will be more rewarding (and faster) than the next 100 on the trail… or that skyrocketing stock will create wealth faster than the boring Total Stock Market Index. The problem is that both decisions take us off the established path.
When you deviate from the trail, you increase your chance of injury. When you deviate from your plan, you increase your chance of failure.
There are specific reasons for switchbacks. Trails are created based upon a plan that takes into consideration the topographical features specific to that area….just like your financial plan should be based upon your unique situation and goals.
The landscape dictates the route up the mountain.
Your goals and current situation dictate the financial plan.
We should look for is consistent indicators of continued success.
Slow and steady worked for the tortoise. Slow and steady works for the mountaineer. Slow and steady works for the investor and the financial plan. If plan reviews and updated projections continue to project success (not just in Monte Carlo simulations but specfic stress tests in multiple areas). Determine what combinations it would take to break your plan. Then, look at the likelihood of those events occurring.
If living 5 years longer drops your plan's chance of success dramatically, there should be concern. But if a 20% drop in equity markets; a 20% reduction in Social Security benefits, inflation is higher by 1% each year; tax estimates are 20% higher than anticipated; and health care costs rise 20% above what is projected in the plan drops you to a 65% chance of success, ask yourself what the chances are that ALL of those things will happen.
We all must accept some level of risk.....life is inherently risky. Warren Buffett noted that "Risk comes from not knowing what you're doing." Know what you're doing and why!
Don’t take shortcuts to avoid the perceived switchbacks of your financial plan. A well-charted path is the best way to achieve your financial goals.
Kyle Rash holds a Master's Degree in Financial Planning with a concetration in Retirement Planning as well as the ChFC® and RICP® designations. He is also a retired Marine combat veteran and the founder of Champion Financial Planning.
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