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Systematic Investing . . . And Why it Should Matter to You

Systematic Investing . . . And Why it Should Matter to You

This past Saturday I knew I wasn’t going to be able to catch up with my girls around the Cutter family breakfast roundtable. With Phoebe taking her driving test on Monday to get her license, her ol’ man had to get Maeve’s old car back up to speed.

It is a pretty cool little car, however, the bright orange color was not very popular with the girls. I told my girls that I bought it in bright orange so if anyone of my little cherubs decides to make some poor driving decisions, well, with the only bright orange car in town, I am going to find out . . . and I know a lot of people. So, I called my buddy Nick the mechanic downtown and he was able to squeeze me in for an overdue oil change and front brakes. Instead of breakfast at home, I offered take Phoebe and Sophie to Mary Ellen’s; a fantastic Portuguese restaurant in town, if they could bear with me while we got the car fixed on the way.

We got to the shop and I handed Nick my keys as the girls settled into the typical mechanic’s shop waiting room. I sat down with them among a few closely quartered chairs, a TV, and a mix of magazine and kids picture books. All three of us did the requisite pulling out of our phones to kill the time, but we quickly found ourselves entertained by a toddler waiting with his mom. He was excitingly enthralled with a nature show that was doing a feature on cheetahs. We found ourselves watching along, smiling at him squirm and dance as he tried to mimic the wild cats. I also found myself surprisingly learning some things. I knew from my grade school days that cheetahs are the fastest land animals. What I didn’t know was that one of the reasons for their incredible speed is that when the do sprint, only one foot is touching the ground at any point in time. Interestingly enough, though, is that for all of their speed, they spend about 90% of their time laying around. In addition, they almost immediately lose half of their “kills” to nearby lions or hyenas.

As with any little kid, even something as exciting as cheetahs quickly gave way to a request for mom to read him a book. I watched as he plopped into her lap and I almost had to chuckle out loud when I saw what the cover was: “The Tortoise and The Hare”.

Hmmm . . . I got thinking about how the concept of “slow and steady wins the race” is so relevant in the investing world, too.

You see, like the cheetah, there is nothing quite as exciting and gratifying as “killing it” on an investment. Getting in at a low price and watching it rise to the top. But many times, we are sitting under the wrong group of shade trees waiting for a herd of antelope to wander by. Or even worse, we wait too long to get out of that investment and watch helplessly as a pride of lions or pack of hyenas, well, drag it away.

And no matter how well we steep ourselves in knowledge of the economy and the marketplace, just like the toddler in the waiting room or the hare in his chosen story, we get distracted. With all of our responsibilities between our family obligations or stressful times at work, we don’t have time to keep maximum, perpetual focus on our investments. It can be as mundane as a bad day, as common and enjoyable as going to the kids’ extracurricular activities or as serious as a family illness or aging parents that need to be cared for. While we keep working on investment goals and retirement plans, life, the good and the bad, is relentlessly coming at us as well.

It’s for this reason that I believe most of us need some sort of program of systematic investing. A lot of times this can be accomplished through something as simple and regular as Dollar-Cost Averaging or DCA. Dollar-Cost Averaging is a popular approach often used in an accumulation investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices.

However, if we are in our transition or our distribution phases of our financial lifecycle, market risk becomes even more pronounced since we need our investment plan to supplement our income plan.

In both the transition and distribution stages, a regular systematic investment program should use quantitative data to help determine when you should be invested and when to sit patiently on the sidelines to preserve capital in times of market stress. You simply cannot afford to have significant losses during these phases of your financial life. Folks, leading up to and in retirement we cannot afford to sit under the wrong group of shade trees waiting for a herd of antelope to wander by. And certainly, we simply cannot wait too long to get out of that investment and watch helplessly as a pride of lions or pack of hyenas drag it away.

A systematic approach will help to simplify the decision-making process, and also drives the emotion out of our investment process. It simply frees up more time and emotional empathy to deal with the onrushing distractions of daily life. But please make sure you have the right strategy for the specific financial stage of life you are in. Specifically, make sure you are not using an accumulation strategy when you really need a distribution strategy.

So, last Saturday, as we were waiting for our breakfast to be served at Mary Ellen’s, I asked the girls if they remembered reading “The Tortoise and The Hare” when they were younger. I teased them that it must seem a bit silly to think a turtle could outrun a rabbit. Turns out they must have gotten some smarts from some side of the family. Like the twins that they are, they both blurted out in near unison, “Depends on how long the race is”.

So as always – be vigilant and stay alert, especially if you see a Phoebe buzzing around town in a bright orange car!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at jeff@cutterfinancialgroup.com.

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