Fast Cars & Your Investment Portfolio

I saw Ford vs. Ferrari over the holiday break. It was a lot of fun to see the rivalry between the two families as they vied for the fastest and best race car in the world. Of course, watching Christian Bale transform himself once again is magical.

I don’t think I am giving too much away by saying the movie has a lot of fast cars and car crashes. It made me think that car racing and investing are not too different. Who isn’t invigorated by driving fast? In the movie, there is a scene where they drive Henry Ford II so fast, he cried because he wished his grandfather could have seen it. It must have been amazing to drive upwards of 200 miles an hour!

The same can be true of investing. Who wouldn’t want to earn 15, 20, even 30% returns? Very thrilling to watch your investment account grow with leaps and bounds. What isn’t so exciting is crashing, or having your brakes burn out on you while careening around a corner. What was thrilling now turns to terror.

The stock market has just capped ten years of gains, with last year being a particularly frothy one. But as I always say, there are bulls, bear, and pigs. And pigs get slaughtered! So, make sure to protect your gains and apply the brakes before you careen off the road. Remember, it isn’t just a decade that ended- you are ten years older too. If you can’t afford to lose money, now is time to protect it.

The last few years remind me of the late 1990’s, where we had year after year of amazing stock market returns. But people forget that you only get that return if you lock it in by selling. And selling is the hardest thing someone must do. The fear of missing out prevents many from taking their gains. Fast forward a few years, and the tech bubble burst and all those gains evaporated.

Consider reviewing your investment strategy to ensure that it is up to date and meets your current needs as well as your needs for next five years. Review each holding and ask yourself: Would you would buy it today? If you wouldn’t, why should you hold it? Make sure to consult your investment advisors and tax professionals first to understand the tax implications of any moves.

Think of investment portfolios like cars. Some of them are purchased for their safety and durability. These cars are the ones we drive our children around in, buy groceries, and take road trips in. Others are beautifully crafted, expensive, and elegant. We love driving them but don’t want the kids spilling milk in them. And then some cars are fast small, nimble and exciting. They are more fragile, break down a lot, not very dependable but when they are working and on a straight highway, they can move fast. Just make sure to have the brakes checked!