Why you shouldn’t buy a Ferrari
The last time I needed to buy a car I considered many factors. Was it big enough to hold my family? Is there enough room to carry our stuff (sports equipment, bags for a trip)? Can it pull a boat, camper, jet ski? Does it have enough get up and go? Is it a nice ride on the highway? Is it a nice ride on our bumpy pothole-filled MI roads? Is it good in the snow and rain?
Ultimately, I decided on a car that I thought was a good combination of all the above.
On the days when the sun is out and I’m on a freshly paved road with no police in site, I really wish I bought the Ferrari. There is nothing like the thrill of all that power and no danger in site.
However, on the days where we get snow and ice, I am grateful I bought the 4wd. Because on those days, when the Ferrari’s are in the ditch, I can keep on heading in the direction I want to go. Or when we want to take a family road trip, I am grateful for the extra seats and room for our luggage. I couldn’t safely take a trip with my family if I only had a Ferrari.
Now consider that this car is your portfolio. We all want our portfolio to go 100 mph…to always beat every index no matter what. The problem is that we cannot control the weather. How many times has the weatherman predicted rain and we didn’t get a drop? Or predicted a clear winter day and we get a dusting of snow that is just enough to turn the roads into a sheet of ice?
These weather conditions are like conditions we face in the economy or life. Will we see rising interest rates or falling interest rates? Maybe international is better than forecasted? Or small caps turn into a real drag. College is more than we anticipated so we need a sooner than expected withdrawal. We get water in the basement and need to access money we thought could grow for 10 more years. We just don’t know what or when the next unforeseen storm will be.
The last few years the Ferrari has been the S&P 500 and the NASDAQ and the weather has been perfect. The problem is that we don’t know where the speed trap is or if the perfect weather is going to turn into a sudden downpour. If we bought the Ferrari and that happens, we will find ourselves in the ditch with no good way out.
This is why I decided to buy an all-purpose car. One that can hold up to whatever circumstances may show up. I realize that I won’t keep up with the Ferrari on sunny days but when the bad weather comes, and it always comes, I feel great with the security I have as I pass the Ferrari that’s in the ditch. I am confident that I can get to my destination (retirement) in my car.
I encourage people to think about this on those days where the weather is perfect and you’re kicking yourself for not buying the Ferrari. Wishing you had all your money in the S&P or NASDAQ 100. It is not realistic to own the Ferrari. There will be too many obstacles we will encounter in our life and we need to have the safety and security of a vehicle that can handle whatever surprises are in store. I’m willing to sacrifice some of that speed for the security that I will get to my destination safely.