Welcome back to Money Mile, the podcast where we share a mile to help you live a better life! In the last few episodes, we discussed the unique financial challenges that endurance athletes face.
This episode translates a financial concept into terms that a triathlete will easily understand. If you aren’t a triathlete, please continue to listen and let me know what you think!
I’d love to know how you did with your homework from the previous episodes, let me know how you are doing on your financial journey by emailing me at firstname.lastname@example.org.
You will want to hear this episode if you are interested in…
- How triathlon training is similar to diversification[2:22]
- How bonds are similar to the run portion of a triathlon [5:35]
- Why completing the homework is important [7:03]
How triathlon training is similar to diversification
As a triathlete, there is one financial concept that easily translates into language you can understand. Portfolio diversification is similar to triathlon training.
Each triathlete has a unique set of strengths and weaknesses, so your training plan is customized to suit your individual needs. The same is true for investing. To develop the ideal portfolio you may need to work on separate areas of your portfolio depending on your financial strengths and weaknesses. Your portfolio should be designed for your individual needs.
The basic building blocks of a triathlon are swimming, biking, and running whereas the building blocks of a portfolio are cash, stocks, and bonds.
Cash is like the swim portion of a triathlon
The cash in your portfolio can be compared to the swim portion of the triathlon. You may or may not need a lot of cash in your portfolio depending on your circumstances, but everyone needs some cash on hand.
In a triathlon, you can’t win a race on the swim alone, but you can lose it there. The same is true for cash in your portfolio. If you don’t have liquidity provided by cash you won’t be prepared when an emergency arises. Maintaining appropriate cash reserves will ensure that you stay flexible.
How stocks and bonds fit into the triathlon analogy
The second part of a triathlon is the bike. This is the area where you will gain (or lose) a lot of ground on race day. Speed and efficiency are key.
The same holds true for the stock portion of your portfolio. Stocks are where the majority of the growth in your portfolio is going to happen. Listen in to hear how you can create a good mix of stocks and find the right balance for your financial plan.
No triathlon is complete without the run at the end. Maintaining a stable, consistent trajectory over time will beat a sprint-walk scenario.
The financial equivalent to the run is bonds. Bonds typically hold steadier than stocks and bring stability and consistency to your portfolio. Holding bonds is a great way to round out your portfolio.
It’s time for you to take action. Remember, it’s not what you know but what you do with that knowledge that counts. This is why it is important to take action so that you can reach your financial goals.
Your homework for this episode is to investigate what portion of your portfolio is in cash, stocks, and bonds. Consider whether this mix is a good fit for your needs. If you aren’t sure I highly recommend discussing your situation with a fee-only financial advisor. Check out NAPFA, XY Planning Network, or the Fee-Only Network to find the right fit.