Invest to Win the World Series, Not the Game

Physician's Money DigestMarch15 2004
Volume 11
Issue 5

Many physician-investors werecaught in a financial vise in2001, their portfolios clampeddown by a stagnant stock market and adramatic decline in yields on cash andfixed-income investments.

Once Bitten, Twice Shy

Most prone to this stuck-in-quicksandfeeling are those who sold themselvesout of a volatile stock market in 2000and into short-term investments, such asmoney market accounts and CDs.

At the time, CDs and money marketaccounts had a lot going for them—these safe havens were posting theirhighest returns in 5 years. Those sameinvestments now carry the lowest yields,on average, in the past 7 years.

So what's a physician-investor supposedto do? Often, the best course ofaction is to do nothing. People sometimesthink that somewhere there existsa foolproof way to glide through thegyrations of interest rates, economiccycles, and stock market correctionsunscathed. Sadly, we are no more likelyto uncover such a secret than to find theFountain of Youth or the pot of gold atthe end of the rainbow.

Logical Strategies

A well-founded, long-term investingstrategy—which more often than notincludes allocation among and diversification within investment classes—willcarry you through good and bad times toreach long-range objectives. The risk ofusing short-term thinking with long-termmoney has the potential to far outweighthe effects of inherent volatility.

A fixed-income investor who movesaway from lower-yielding, risk-freeinvestments to pursue higher yields onnoninvestment grade debt, for example,encounters the far greater risk ofprincipal losses.

Don't Bet The Farm

Jeopardizing the principal from whichthe investment income is earned is akinto the farmer betting the farm. The samegoes for the 20-, 30-, and 40-somethingsbellyaching at the water cooler abouttheir declining 401(k) balances. The riskof investing too conservatively nowposes a far greater risk to retirementsecurity than the current market malaise.

The question to ask is whether yourportfolio is in mesh with your long-termgoals. Proper apportionment amongstocks, bonds, and cash, and the periodicrebalancing needed to keep this mixintact are vital to weathering marketand economic conditions while achievinglong-range objectives.

Did the Florida Marlins win everybaseball game last year? No, they didn't.But they did achieve the larger goal ofwinning the World Series.

Just as a championship baseball clubdoesn't jettison a proven lineup of productiveplayers in favor of minor league callupsamid a losing streak, investors shouldnot dismiss the long-term merits of a properlyallocated and well-diversified portfolioamid the inevitable short-lived volatility.Always stay the course and invest for thelong term.



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