The Vacationers' Guide to Investing

Two colleagues went on holiday separately. One had a great time. The other had a miserable experience. Their respective stories provide valuable lessons, not just about taking a vacation, but about investment.

​Frances booked a beach house up the coast for a week. Brian opted for six nights of bush walking through the mountains. Frances returned to work, rested and recharged. Brian came back a jibbering wreck. What happened?

​Brian is a last-minute kind of guy. He'd heard about outdoor excursions from a stranger and decided on impulse to book a rugged 'alpine adventure'. The problem was his urgency left him little room to negotiate over price or service. And the package he chose was not the one his acquaintance had recommended.

The brochures promised sunlit vistas and invigorating nights in the open under canvas. But the weather wasn't kind. It rained every day. Brian's hired gear, which he'd organised at the last moment, was inadequate. His shoes fell apart, the tent leaked and he, quickly discovered, he hated bushwalking.

It rained on Frances' holiday, too. But she hadn't invested all her expectations into lying on the beach. Anticipating all climates, she'd packed books to catch up on, along with a painting kit, crossword puzzles and a guide to local galleries and cafes.

Having planned her vacation months in advance, Frances also had had a chance to think about her desired end experience. It wasn't so much the beach she was looking forward to. It was the solitude, and quiet and chance to refocus.

Frances had taken advice about the holiday from a friend who had known her for years, understood her tastes and values and knew her tolerances.

Brian, on the other hand, was so focused on someone else's vision that he had no idea what he was trying to achieve. The advice he received was from a complete stranger and he had never really articulated to himself the goal of his trip.

His impulse-buying meant he had spent too much on an experience that wasn't right for him anyway and which left him no control or choice over his destiny.

The point of this story is to show that investing is a little bit like planning a vacation. There are always going to be things outside your control, like the weather. But you can mitigate that by packing well and diversifying your activities.

Not doing it all on impulse or at the last moment gives you more flexibility around cost and design. And thinking clearly about who you are and what you are trying to achieve lessens the chance of taking inappropriate risks.

Seeking counsel beforehand is best done through someone who knows you, understands what you value and appreciates what you are prepared to risk.

Most of all, like most things in life, the journey and the destination shouldn't really be separated. Where we are trying to go through investment and how we are trying to get there are often one and the same.

Once we understand all that, holidays (and investment) can be much more successful and much less stressful.

This article originally appeared in Outside the Flags and is reproduced with the permission of Dimensional Fund Advisers.

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