Sailing and Investing on Your Own
The Lesson: I recently visited the Caribbean on a family vacation. After a couple of days of lounging by the pool, I got bored and decided to investigate the available watersports. After a little paddle boarding and kayaking, I signed up for a hobie cat sailing lesson. “It’s easy, mon,” said my native sailing instructor, as he effortlessly guided the boat on the turquoise sea. With my personal guide on board giving me step-by-step instructions, I quickly became comfortable with the small craft. As the wind picked up, so did my adrenaline as I directed the boat quickly through water. When we returned to shore, my guide hopped off and said, “You got it, mon! Now, you do it.” I gulped and, reluctantly, said, “Okay.” I wasn’t so confident anymore, but then thought to myself, “how hard can it be?”
The Turns: I pulled the sail in tight and raced to the spot where my guide and I had so easily turned the boat around twice. The instructor had told me the key to a successful direction change was to pull the sail in tight to get up enough speed . . . then, at the right moment, quickly turn the rudder and relax the sail (at least that’s the way I understood it after two brief lessons). To reverse direction, I needed the wind to fill the boat’s sail from the other side. Oh, I also needed to simultaneously slide over and sit on the other side of the boat. On my first solo turn, I ended up drifting in the water. On the second try, I wasn’t able to turn at all and just kept going in the same direction. Each fruitless attempt put me further away from the beach and closer to the reef surrounding the island chain (the third largest barrier reef in the world). Did I mention I was getting nervous? After four turnaround failures, I was thinking to myself, “Why did I do this again?”
The Tipping Point: When I pondered my problem, it seemed that I wasn’t getting up enough speed to provide the momentum needed for the turnaround. I yanked hard on the rope to pull the sail in tight and leaned back (I’ve seen this done on TV so it seemed like the right move at the time). My acceleration was spectacular! I certainly had enough speed. I started the turn, and it was going well until a strong gust hit my sail. I could only watch as the sail and mast crashed into the water. I was catapulted into the air. Splash! Dazed and floating in the water, I thought to myself, “and this is why you wear a life jacket!”
The Rescue: Instinctively, I crawled onto the hull and surveyed my situation. I was in a foreign country and out on the sea all alone . . . a financial planner, helpless and out of his element. I didn’t know what to do next. Ten minutes later, a power boat cruised by. I waived my arms. The passersby just waived back. Four million years later (well, just twenty minutes in real time), a parasail boat stopped to help. With an understanding smile, they grabbed the top of the sail and easily flipped the boat back upright (they had obviously rescued plenty of tourists). I jumped back on the boat and was very glad to see that it was pointing in the right direction. I seized the opportunity and headed straight for the beach (and that comfortable lounge chair by the pool!).
The Realization: What does this story have to do with money, you may ask? While adrift on my capsized craft, it occurred to me that sailing and investing are a lot alike. While the wind was at my back and the sea was calm, even a novice like me could look like a sailing expert. However, when the wind picked up and the waves got bigger, the boat didn’t respond the way I expected. I had no idea what to do, and maybe I panicked a little. The truth is that I didn’t have enough experience to handle the unexpected. Had my guide been with me, however, I’m sure that we would have negotiated the situation just fine. The very same is true with investing. When the markets are soaring and the economic “winds” are blowing in the right direction, even the most uninformed and inexperienced investor can look like a pro. But, when the proverbial “tide” turns and when your investment “boat” doesn’t respond as expected, a financial “instructor” can make the difference between staying afloat and capsizing.
Get personalized financial advice before you set sail for retirement. Better yet, take an adviser along for the ride and you can increase your chances of “no worries, mon!”
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.