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Page 1: 3 Things Investors Can Learn From Forrest Gump. · 3 Things Investors Can Learn From Forrest Gump. ... you want to take a lesson from Forrest Gump and start ... Forrest, run!” 441

3 Things Investors Can Learn From Forrest Gump.

Securities offered through SII Investments, Inc. (SII), Member FINRA, SIPC. Advisory Services offered through Scarborough Capital Management (SCM), a Registered Investment Advisor. SII & SCM are separate companies.

By Gregory S. Ostrowski, Managing Partner, CERTIFIED FINANCIAL PLANNER®, Scarborough Capital Management

Pace your investments for an epic run that rivals Forrest Gump’s.

In the classic film, “Forrest Gump,” the main character of the same name, played by Tom Hanks, takes us on a journey through middle to late 20th century America, touching on many historical occurrences in a nostalgic and thought-provoking way.

For some viewers, it’s a way to relive the past. For others who may not have been around during that time, the film may have been their first look at some of the events that shaped our country’s history.

But as a financial planner, there’s one scene that sticks out in my mind, because it relates so closely to investing: when Forrest runs across the country.

For those who either haven’t seen the movie or need a quick refresher, in one scene, Forrest just decides to start running and doesn’t stop. During that sequence, he says he ran for over three years, crossing the country multiple times. That’s a lot of running.

With that, here are a few lessons from Forrest’s journey and what they teach us about how to save consistently over time, despite market inconsistencies.

1. Forrest started somewhere. If you’re running a long distance, you don’t delay your endeavor because the weather is just a little too cold one day. You just jump right in and start. There are going to be a lot of too cold or too hot days along the way. That’s not the point. The point is that by putting one foot in front of the other, he got it done.

As in any long-term venture, you have to start somewhere.

Despite some volatility, now is not a bad time to get into the market. It’s not going to be much different today than if you got in a week or month from now. But what you’ll find is that if you wait a month or two, it may turn into waiting a year, and then two years. All of the sudden, you find you missed an opportunity to get your money to start working for you earlier.

Sometimes starting is the hardest part. But once you do, you’ll find making it a practice becomes easier.

2. He ran with purpose, not a finish line, in mind. He ran for the sake of running. He wasn’t trying to set any records or cross a finish line.

With planning for retirement, yes, you want to have an idea of how much you’d like to have put away, and when you can actually retire. But the point is that if you save as a habit or practice, it will be much more effective than trying to chase short-term financial goals, all so you can say you have a certain amount of money put away right now.

And since your money has to work for you even after you retire, there is no finish line in investing.

3. It’s tough to manage long-term investments with a short-term view. So, how does what we’ve learned from Forrest’s run translate into the real world? Let’s look at the time between 2000 and 2010 as an example.

This “lost decade” saw its share of financial troubles. Over this period, the Standard & Poor’s 500 index returned just 1.4 percent, annualized. If you look at that data point alone, it’s easy to think there was no value in investing your money in the market. Or, put another way, there was no reason we should have started.

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But if you give it a closer look, looking at the Barclays Capital U.S. government intermediate-term index and S&P 500 index, you’ll find someone with a broadly diversified portfolio (60 percent equity and 40 percent bond) realized a growth rate of 7.8 percent annualized over the same time frame.

The takeaway here is not that investing is a bad idea, but investing without thinking through the proper asset allocation is a bad idea.

Again, someone who invested consistently actually did pretty well, as long as they weren’t chasing any preconceived short-term goals. As Forrest paced himself and ran when he could, he made progress and kept going. He wasn’t worried about his time.

Here’s a case where looking at both short-term factors and long-term goals let this group of equity and bond investors realize a great return when others were barely getting by.

The short-term matters to the extent of an investor’s need to rebalance a portfolio, and in this case, missing some potential profits.

But a long-term investment approach needs to be used alongside short-term rebalancing to yield the best results. And what works over time is a solid, consistent approach, which doesn’t chase market highs or bail out when things start to tank.

So if you’re thinking now is the time you want to take a lesson from Forrest Gump and start somewhere, there are people who can help. A certified financial planner can get you going on the right path as you’re at the starting line and aid you on your journey all the way through the finish.

“Run, Forrest, run!”

441 Defense Highway, Suite E • Annapolis, MD 21401 • 800.200.3870 • scmadvice.com

Securities offered through SII Investments, Inc. (SII), Member FINRA, SIPC. Advisory Services offered through Scarborough Capital Management (SCM), a Registered Investment Advisor. SII & SCM are separate companies.