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Let down by the target I never had

by Money Puzzle   ·  February 14, 2020   ·  

Let down by the target I never had

by Money Puzzle   ·  February 14, 2020   ·  

Photo by Derick Santos from Pexels

If you’re a regular reader of my posts and blogs, you already know that I often link long-distance running to financial health and investing.

Earlier this month I ran the Tata Mumbai Half Marathon (for those who are not aware – a distance of 21.097 km) for the 5th time. I run long distance because I love to. It’s an activity that challenges me physically and mentally, and yet at the end of each run, I feel stronger. Hence, I return again and again.

Running requires discipline and a regular schedule throughout the year. Just showing up for a marathon or a half marathon can be done, but the damage to your body as a result of not being regular can be dire. And so, I run regularly throughout the year. In the last six months, however, I notched it up a bit and trained even harder in a bid to improve my leg strength and speed. I clocked in great practice runs, which means I ran long and at a pace faster than ever before. Come D day however, all this went belly up as I finished the half marathon at least 5-6 minutes slower than expected.

The irony is that I never really articulated a time target for my run; how can it be slower than expected then? There were discussions of range, but no focused time target. Could that be the mistake I made, which brought up this unsought disappointment?

Articulate that goal

Here is where running long distance comes closer to long term investing. You need to have a defined goal in both. It can’t just be about stronger and faster; I need to put a specific time target for my run. I remember conquering this really difficult 25 km hill (intermittent) run in 2 hrs 58 minutes a couple of years ago; I couldn’t do it again the next year. The year I achieved my best time on this run, I kept repeating ‘sub 3 (hrs)’ in my mind for the weeks before the race. I didn’t do anything different the year after, just felt that I could do better and ended up doing worse by nearly 12 minutes.

This is why goals are important; your mind subconsciously directs your actions. Plus, if you aren’t closer to your goal as time wears on, you can consciously change tactics to get there. In the TMM this year, I didn’t have a defined target; even though I ran faster towards the end – what was the time I wanted to overcome?

When you invest, having a goal requires you to actually think about the financial objective and arrive at a rational amount and time period for achieving it. Say you want to save up to spend on your wedding. You have estimated the cost to be ₹10 lakh, but your current savings are only half that amount. It will take you another 2 years to accumulate ₹5 lakh by investing ₹20,000 a month at an assumed return of 9% every year. You now know three things:

  • Wait 2 more years
  • Invest ₹20,000 a month
  • Find something that delivers 9% annualised with some degree of safety

If any of this seems unachievable, you know you will have to adjust your wedding budget lower. Having a defined money goal makes a lot of the uncertainty go away and you take the actions required to achieve the goal.

Without this clarity, you may not think twice about planning a wedding within a year and could easily find yourself overshooting the budget – leading to a personal loan. Starting your married life with a personal loan repayment at interest rates above 10%-12% a year is hardly a merry beginning.

Being regular is great for health and wealth

I mentioned earlier that I run regularly. You may think, why then couldn’t I achieve a better race result? Yes, I was off my timing and pace, but what the regular running discipline does is keep my legs in order. I feel no pain, no tiredness and no lethargy in my back or legs post the run. Despite having had less sleep the night before, I had no trouble in continuing through various activities (some years even hosting other runners for biryani at home) like a regular day.

Without the regular running discipline, I would have crashed, been left with a sour experience and not enjoyed myself at all.

When you invest regularly in smaller amounts, through different market cycles, you are able to adjust your thoughts to the volatility. You can see that interim volatility impacts your immediate return but is also useful for your long-term return target. Instead, if you wake up one day and invest all your saved-up surplus in the market, any subsequent near-term drop-in value will give you a lot of anxiety.

If prices don’t recover fast, you’ll start to think that this was a mistake and might even book out of the investment in what you are convinced is a good way to save further losses. In reality, what you will do is end up bailing too soon because you can’t take the short-term pain. Market linked investments (both debt and equity) can move in either direction in the short term, but over a period of time returns align to their fundamental value. In case of debt funds, it’s the average portfolio yield that you can expect as a return over time and in case of equity funds over a period of 7-10 years inflation plus returns in the range of 10%-12% post-tax is achievable.

Unless you are a regular investor you may or may not be able to come to terms with this experience of short-term volatility and end up making the wrong choice.

It’s not just that though. Regular investing also brings in the discipline of saving your money rather than spending it all. You put aside a little each month that goes into an investment. Again, you may not see the benefit of this discipline right off the bat, but give it a few years and you’ll thank your younger self for managing your money with the required level of restraint.

Running regularly has that added benefit of keeping me fit. Timing target aside, I wouldn’t trade this discipline for anything.

As I sulk about the missed opportunity in this year’s half marathon, I feel grateful for what I have managed to achieve. I am going into next year’s half marathon equipped with a focused time target to conquer. A disciplined running routine means that even if I don’t manage the precise target, I know I won’t be too far and that too on legs that aren’t tired.

Bring in this discipline and goal-based approach to your investing habit now, be ready to thank yourself ten years on!

1 Comment

  1. Arundhati Barbora

    Good article. It makes sense to not only save for a rainy day but to realise exactly what you want to do in the rain.

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