I’ve always enjoyed driving. I don’t have a need for speed or a desire to own a sporty car.
When I get in my car, I think about all the moving parts formed together, all the different systems and pieces designed, cut, and assembled into a cohesive unit. I like the sound of the tires on the asphalt, the feeling when the gears shift, all the little clicks and thuds and even the fonts on the dashboard.
I appreciate and enjoy how it works.
I’m the same way with the stock market. I’ve gotten a lot of enjoyment out of reading books on topics like money, the Fed, the Great Recession, investing, and even statistics and economics.
On the way home from work one day I heard the stock market quotes on the radio and started thinking about investing. Then I remembered something I’d read from Robert Kiyosaki (Rich Dad Poor Dad):
Investing is like driving a car. If you have no education or experience, it is very, very risky.
I thought I was a pretty good driver at 16. Even though I failed my written test the first time, I practiced a lot and developed a lot of good habits, like wearing my seatbelt. But looking back, there were plenty of times I probably should have crashed that I didn’t.
Even after fulfilling the requirements to get my license, it’s taken many years and lots of repetition to get to the point where I haven’t had a speeding ticket in 8 years, haven’t had a wreck in over a decade, and have to slam on my brakes in a panic every once in a long while.
With investing, education allows you to understand that there are different levels of risk. Doing things like building a savings habit, investing in boring index funds, and being patient enough to let your money grow makes investing a lot less risky than buying individual stocks based on tips or recent performance, putting all of your 401k in company stock, and making decisions based on what the market did in the last 24 hours.
And that’s just investing in stocks. There’s a lot of risky investments out there that, while interesting, shouldn’t be the main component in your wealth building.
Over time, your good investing habits become experience. You experience market fluctuations, downturns and recessions, media predicting this or that, and the monotony that comes with slowly and steadily saving for a long term goal. You’re not immune to outside forces, but you know enough that you have confidence that you’ll get where you’re going.
Good driving habits, like learning how to drive defensively, translate perfectly. In defensive driving, you accept that you can’t control the people you share the road with. You can only do your best to protect yourself from them.
Good drivers tune out distractions, know where they’re going and have an idea of how to get there (or at least know how to use tools to help them), and are patient. They understand roadblocks and traffic and that speeding carries a lot of risk for the small reward of arriving a few minutes earlier.
Good investors do the same.Posted by Matt on .
6 comments so far.