IDNA - 7 Ways Investing Is Like Long-Distance Running

2023-08-29 03:25:00 ET

Summary

• Investing is a lot like long-distance running; sometimes the hardest part is just getting started.
• Exchange Traded Funds (ETFs) can be a great option for beginning investors as they can help you create a diversified portfolio and alleviate the challenges of choosing individual stocks or sectors.
• One you start running, or investing, the key is to have a disciplined approach so you have a better chance of staying in the race for the long run.

By Gargi Pal Chaudhuri

I often marvel at how running and investing in markets have so much in common. Since running my first marathon in 2004, I have run 25 marathons, about 50 half marathons, 10 triathlons, and countless other shorter distance road races.

During the same period, I navigated some severe market dislocations and have been exposed to countless bull and bear markets as a sell-side market-maker, a buy-side trader, a portfolio manager investing, and an investment strategist for the largest ETF provider.

Here are some of the lessons that running has taught me about investing.

1. Just get started

The journey of 26.2 miles starts with a single step. Sometimes the hardest part of the workout is deciding to get up from the couch and lace up for a run. Similarly, investing can be complex and overwhelming for first-time investors and we often suffer from “analysis paralysis”.

If you are a new investor and thinking about investing in the markets, just start with a single step towards your financial journey.

Exchange Traded Funds (ETFs) can be a great option for beginning investors and can be used to create a diversified portfolio. For example, iShares Core asset allocation ETFs are designed to be a simple way for investors to build a diversified portfolio , providing exposure to potentially thousands of stocks and bonds.

The iShares Core Growth Allocation ETF ( AOR ) , for example, holds roughly 6,000 stocks and 20,000 bonds. Similar ETFs are built with conservative or aggressive risk targets; the key differentiator being how much of each fund is invested in stocks vs. bonds.

A mistake some investors make is waiting to invest because they think they need a lot of money to get started, which is not the case. ETFs can help you begin investing as soon as you want and you can start with as little as $1 when you buy fractional shares of iShares ETFs.

Just like your marathon training, your investment training plan will be key to your success after the first step is taken. It should guide you based on your unique needs — how much money you expect to need, when you expect to need it, and what are upcoming events that you need to plan for.

What kind of risks are you willing to take? What kind of returns might you make for those risks. That training plan will guide you after you take the first step.

2. Diversify the training

When I ran six days a week and did yoga only once a week I was a horrible runner. When I did yoga three days a week and ran four days a week I became a much better runner. Diversifying your training regime is key to success in running - and other forms of strength training.

In your investments, ETFs make it fast and easy to invest across a diversified portfolio. For example, you can access 500 of the largest U.S. stocks with the iShares Core S&P 500 ETF ( IVV ) .

While U.S. investments may be great, but have you thought about the potential benefits of exposure to countries that could benefit from long-term trends like demographics or friend-shoring?

Friend-shoring is a term used to describe the trend of countries trying to shift manufacturing and supply chains to nations that are more closely aligned politically; for example, the U.S.-Mexico-Canada free trade agreement reduces tariffs between the U.S., Mexico and Canada. ¹

3. Run your own race

On race day, you don’t know what other’s goals are. Some are trying to set a new personal best time, while others are doing it just to finish. You don’t compete with other runners. Ultimately, you’re only competing with yourself to have your best race. The same is true with investing.

If your best friend or favorite market analyst is putting all their money in frontier markets, that may not be the best approach for you. Invest based on your personalized plan, which probably won’t look like the investing plan of the person next to you.

4. Your training discipline determines how you feel on race day

Banging out 30-50 miles a week, week after week can be grueling but the discipline will prevent you from bonking on mile 15 on race day. Similarly in investing, you have to do your research on markets (or follow great market thought leaders.)

But only you can dictate your investing discipline. Understanding how you should size a certain trade, when to cut your losing position, or when to add to winning positions, is all about building a plan and sticking to the plan with discipline.

5. Pace yourself

When I finally broke four hours in a marathon after years of trying, my first half was well over two hours. The previous years I had done 1:56 or 1:57 halves and still not been able to break four hours. It’s all about pacing.

In investing, the same principle applies. You are in this race for a long time. Stay invested for the long term , add to your portfolio in a measured way, and don’t go “all in” on one incredible theme or stock and try to “kill it” in one mile only to suffer down the road.

6. Plan for the unexpected

Hip stress fracture during training, race day weather 30 degrees over normal, cramping at mile 15 and having to walk, and a racecourse running out of water by mile 10; these are all real obstacles I’ve faced as a runner.

Similarly, during your investment journey of 50-plus years there will potentially be recessions, bear markets, countless liquidity crises, bank failures, rate hike and cutting cycles, inflation, and deflation — just to name a few events that can trip up an investor.

You can’t control the volatility, but you can control your reaction to it. Make tweaks to your portfolio based on your macro assessment and personal needs and try to stay invested for the long run.

Remember no one can really time the markets — but we can just stay invested and remind ourselves that we are in this for the long run. It’s a marathon after all!

7. Stay calm & carry on

Just like in the market, every race has its ups and downs — sometimes quite literally if the course is hilly. The key to running a successful race is to push through the rough spots without getting too upset, and to enjoy the periods when everything feels great without getting complacent or losing focus.

The same is true with investing, where keeping your emotions in check no matter how good (or bad) your portfolio is doing at a given moment is critical to staying on track to reach your long-term goals.

Conclusion

If you haven’t noticed, I’m passionate about running and believe it has helped me professionally. Running just works for me: On the worst market days, I often console myself with a run — and reward myself with the same on the best market days.

Maybe running isn’t your thing but hopefully the lessons I’ve learned from putting in the miles can help you on your investing journey.

© 2023 BlackRock, Inc. All rights reserved.

¹ Source: Office of the U.S. Trade Representative as of July 1, 2020. USMCA | United States Trade Representative (ustr.gov) .

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

Diversification and asset allocation may not protect against market risk or loss of principal.

Buying and selling shares of ETFs may result in brokerage commissions.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in the value of debt securities. Credit risk refers to the possibility that the debt issuer will not be able to make principal and interest payments.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.

Investment in a fund of funds is subject to the risks and expenses of the underlying funds.

This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision.

The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial professionals for more information regarding their specific tax situations.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, "BlackRock").

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Bloomberg, BlackRock Index Services, LLC, Cboe Global Indices, LLC, Cohen & Steers, European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), ICE Data Indices, LLC, NSE Indices Ltd, JPMorgan, JPX Group, London Stock Exchange Group (“LSEG”), MSCI Inc., Markit Indices Limited, Morningstar, Inc., Nasdaq, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), Nikkei, Inc., Russell, S&P Dow Jones Indices LLC or STOXX Ltd. None of these companies make any representation regarding the advisability of investing in the Funds. With the exception of BlackRock Index Services, LLC, who is an affiliate, BlackRock Investments, LLC is not affiliated with the companies listed above.

Neither FTSE, LSEG, nor NAREIT makes any warranty regarding the FTSE Nareit Equity REITS Index, FTSE Nareit All Residential Capped Index or FTSE Nareit All Mortgage Capped Index. Neither FTSE, EPRA, LSEG, nor NAREIT makes any warranty regarding the FTSE EPRA Nareit Developed ex-U.S. Index, FTSE EPRA Nareit Developed Green Target Index or FTSE EPRA Nareit Global REITs Index. “FTSE®” is a trademark of London Stock Exchange Group companies and is used by FTSE under license.

©2023 BlackRock, Inc or its affiliates. All Rights Reserved. BLACKROCK, iSHARES, iBONDS, ALADDIN and the iShares Core Graphic are trademarks of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners.

iCRMH0823U/S-3067720

This post originally appeared on the iShares Market Insights.

For further details see: