Tackling the peaks and troughs of investing

In many ways, investing and financial planning can be compared to mountaineering. Both have ‘treacherous’ obstacles to face and overcome. It’s worth remembering that before even seasoned climbers tackle their next vertical challenge they abide by a few simple principles that assist them before and during their expedition. These six principles can also offer useful guidance when tackling the peaks and troughs of investing:

1. Start your trip with a clear plan of where you’re going, and how long it will take

Without this, one is almost, by definition, immediately lost! In the investing sphere, this means carefully considering one’s mix of current assets and liabilities, expected income and expenses, and figuring out the return required from investment to make the sums add up. And if the target is say 4% above inflation, it is important to realise that at least five years of market ups and downs might be required to give a reasonable prospect of reaching it. For example, each of our branded unit trusts have a particular benchmark and associated recommended minimum investment period. No peak worth being conquered has a short-cut and similarly most investments need a sustained period to flourish.

2. Keep the end goal in mind, but expect difficulties and adversity on the way

No mountaineering that I have done has ever involved a flat walk on level ground. And the same goes for investing. The future is always uncertain and that uncertainty is reflected in market fluctuations. When trying to get that 4% above inflation it means being invested in growth assets such as equities. And that means enjoying or enduring the inevitable ups and downs that are a feature of the equity markets along the way.

3. When these arise, trust your navigational tools, don’t rely on your feelings

When ill-equipped or in-experienced mountaineers get lost they can wander off in odd directions, making a bad situation even worse. A compass, map and GPS receiver limit the chances of disaster by giving objective reference points. In similar vein, understanding the powerful long-run tendencies of equity and other market returns, can keep us from making narrow-minded investment mistakes. It’s good remembering that there are always investment choices, some more difficult than others. Fortunately, these are never as difficult as events recounted in the 2003 mountaineering documentary, Touching the Void, in which climber Simon Yates decided to save his own life by cutting the rope of fellow (injured) mountaineer, Joe Simpson.

4. Get up before dawn, and work hard and consistently throughout the day

One of the most experienced Drakensberg mountaineers is on record as saying, “Start early each day. That may make all the difference between a little and a life-threatening problem.” The comparable advice for investors is: start investing as early as possible to achieve one’s financial goals. That will of course allow more time for the powerful benefits of compounding returns (being able to earn returns on your returns) to work in your favour.

5. Remember to seek expert help when tackling unexplored terrain

As an inexperienced climber would learn the fundamentals from a seasoned mountaineer, so should you get advice from an independent financial advisor when you require expert guidance. A financial guide with a proven track record will greatly improve your chances of reaching your investment objectives; choose carefully and you will have a guide who will stick by your side when the going gets tough.

6. Stop and enjoy the view, and reward yourself when you reach objectives

If you don’t take advantage of opportunities to do this while in the mountains, there’s really no point in enduring the hardships involved in being there. Similarly, investment successes should be acknowledged and celebrated. This will help keep you enthused on the multi-year journey - through easy times and hard - to achieve your carefully thought-out financial goals. After all, investing is ideally not just an end in and of itself, but a means to some greater end. Enjoy the adventure!