Recently two big game hunters on safari found themselves staring into the eyes of a very angry lion.  They had surprised the ferocious feline in a clearing and since they weren't’t armed they knew they would have to run for it if they hoped to get out alive. The two hunters immediately turned away from the man-eater and began to run as fast as their legs could carry them.  The lion took up chase and quickly began to close in on his next meal.  As they ran for their lives the first hunter said to the second, “What are we going to do!  We will never be able to out-run this lion!”

“Oh,” said the second hunter, “I don’t have to out run the lion.  I just
have to outrun you.”

Like the first hunter trying to outrun the lion, you may think you have to beat the market average in order to survive the investment race.  To stay ahead of the game, it may not be necessary for you to do that at all.

In the big game world of investing many investors find themselves chasing returns that are better than the “market average.”  Beating this average is their obsession as they scour the markets for fast growth stocks or select mutual funds that the investment magazines have selected as sure winners. In doing so they may encounter a couple of obstacles.

One of the first problems encountered in this pursuit is a definition of the “market average.”  Is it the popular Dow Jones Industrial average, which is made up of just 30 of the top industrial firms that trade on Wall Street?  Perhaps a better measure is the S&P500 index, which represents a much broader cross-section of the investment world.

If more stocks make a better index, why not use the Russell 2000, or even better the Russell 3000?  There are 2,000 or 3,000 stocks in those indexes.  Theoretically the more stocks in the index the closer its returns will be to replicating the true performance of the market.

Along with the stock indexes you may find yourself looking to include some bonds in your portfolio.  Same problems there.  Many different indexes to choose from.  Some maybe just the ticket for you, while others may have no value whatsoever.  Confused yet?

Investment professionals create even more confusion by arguing incessantly about this very issue.  What is the market and what is the proper proxy to use as a benchmark when measuring performance?

Every high-powered money manager has the quick answer to this question.  They are even quicker to back-up their position with reams of statistical data thereby proving the validity of their stance.

Some industry professionals have a vested interest in their argument for the proper index.  John Bogle, who founded the Vanguard family of funds in 1974 has written two books trying to convince us that his Vanguard 500 fund is the true market  measure.  Do you think maybe he has a few dollars riding on the outcome to this discussion?

So you can see this pursuit of the market beating returns can get
complicated pretty fast. By now you are probably getting the idea that the question of finding what actually represents the “stock market” is not an easy task.

Should you be spending your time worrying about what is or isn’t the market?  I don’t’ think so.  Investors can be overly concerned about beating the “lion” of the market.  In reality they may have a much easier task in front of them.

While most investors are back at the starting line arguing about the
subtleties of the proper index, the more savvy investor can already be well into their race. They don’t have to beat everyone, they just have to generate enough returns to win their race. By coming to this simple conclusion an investor could already be in a position to get a fast start.

Rather than talking about market averages and indexes, let’s begin by figuring out what you as an investor need to win your race.

Like any runner the first thing you have to do is figure out where the
finish line is.  Are you in a 100 meter sprint or a 26 mile marathon?
Actually you don’t really need to know the exact distance.  You just need to have a reasonable estimate of where the finish is to get started.  With an idea of how much time you have to invest you can proceed to the next step.

Now you have to decide what you want the finish line to look and feel like. Do you want a limousine at the end of the race ready to take you to a first class hotel and a full body massage?  That life style you have your heart set on is a big factor in this race. It will determine how much capital you will need to accumulate.

As you consider your resources you will be faced with some tough questions. Can you sustain the amount of savings you will have put away to achieve your desired lifestyle?  Are you prepared to deal with the obstacles that inevitably pop up along the course of the race.  Runners call them muscle cramps, dehydration or sprains.  I call them disability, children’s college savings, divorce or the other life issues that may pop up in your life. These and other issues can easily put you behind the pace you need to maintain to get to the finish line when you want.

Probably the biggest obstacle you face in your race, and the one most people have a difficult time with is being honest about the shape you are currently in.  Let’s face it, you don’t see many overweight, out-of-shape runners.  You may be fooling yourself when you take a look in the mirror and overlook the roll around the waist or recall that your last physical exertion consisted of moving your recliner closer to the television.  How can you successfully complete a 26 mile marathon, when you can’t even make it to the mailbox without running out of breath?

Likewise you have to gather an accurate picture of your financial condition.  People naturally avoid bad news and will use just about any excuse to keep it at safe distance.  If that fits you, then find someone who can help you deal with the cold hard facts.  Facing those facts is not as scary as you may think.

Once you know where the finish line is, what you want it to look like and what kind of shape you are in you are ready to take your place in the race of life.  You don’t need to worry about how fast everybody else has to run to win their race.  You only have to win yours.

Whether you go through this process by yourself or with someone’s
assistance, find out what you must do to win your life’s race.  Take stock of what you have, what you need to do and forget about the market average. Doing these simple things will certainly give you a leg up on outrunning the “lion” and increase your odds of financial success.     

While most investors are back at the starting line arguing about the
subtleties of the proper index, the more savvy investor can already be well into their race. They don’t have to beat everyone, they just have to generate enough returns to win their race. By coming to this simple conclusion an investor could already be in a position to get a fast start.

Rather than talking about market averages and indexes, let’s begin by figuring out what you as an investor need to win your race.

Like any runner the first thing you have to do is figure out where the
finish line is.  Are you in a 100 meter sprint or a 26 mile marathon?
Actually you don’t really need to know the exact distance.  You just need to have a reasonable estimate of where the finish is to get started.  With an idea of how much time you have to invest you can proceed to the next step.

Now you have to decide what you want the finish line to look and feel like. Do you want a limousine at the end of the race ready to take you to a first class hotel and a full body massage?  That life style you have your heart set on is a big factor in this race. As you consider your resources you will be faced with some tough questions.  Can you sustain the amount of savings you will have put away to achieve your desired lifestyle?  Are you prepared to deal with the obstacles that inevitably pop up along the course of the race.  Runners call them muscle cramps, dehydration or sprains.  I call them disability, children’s college savings, divorce or the other life issues that may pop up in your life.  These and other issues can easily put you behind the pace you need to maintain to get to the finish line when you want.

Probably the biggest obstacle you face in your race, and the one most people have a difficult time with is being honest about the shape you are currently in.  Let’s face it, you don’t see many overweight, out-of-shape runners. You may be fooling yourself when you take a look at yourself in the mirror and overlook the roll around the waist or recall that your last physical exertion consisted of moving your recliner closer to the television.  How can you successfully complete a 26 mile marathon, when you can’t even make it to the mailbox without running out of breath?

Likewise you have to gather an accurate picture of your financial condition. People naturally avoid bad news and will use just about any excuse to keep it at safe distance.  If that fits you, then find someone who can help you deal with the cold hard facts.  Facing those facts is not as scary as you may think. Once you know where the finish line is, what you want it to look like and what kind of shape you are in you are ready to take your place in the race of life.  You don’t need to worry about how fast everybody else has to run to win their race.  You only have to win yours.

Whether you go through this process by yourself or with someone’s
assistance, find out what you must do to win your life’s race.  Doing these simple things will give you a leg up on outrunning the “lion” and increase your odds of survival.
 
 

Contact Mark Neil at:
Northwest Wealth Advisors, Inc 
0605 SW Taylors Ferry Road
Portland, OR 97219
Office: (503) 478-6632 
Fax: (503) 595-1863 
Email: mneil@nwwealtadvisors.com 

© 2003 Mark Neil