In honor of National Bike Month, I thought it would be appropriate to compare how investing is like riding a bike.
There are a lot of similarities between investing and riding a bike, and a few lessons you learn that can carry over to investing. Below are three ways investing is like riding a bike.
You Wobble at First, But Improve With Experience
Most of us don’t just hop on a bike and experience great success. Growing up, I lived partway up a hill.
My father taught me how to ride a bike simply by holding it steady while I climbed on, and then letting it go.
I was wobbly at first, not even getting all the way down the hill before falling off into someone’s yard. With experience, though, I improved and could zip down the hill with confidence.
Investing is the same way.
At first, you are likely to be a little wobbly, choosing the wrong investments and experiencing setbacks.
However, with experience, you become more confident, and more able to spot potential winners. And, just as I still sometimes falter while riding my bike, you will occasionally run into trouble with your investments. But with experience the recovery comes a little faster.
Protection is Important
You wear protective gear when you ride your bike (at least you should wear a helmet). Your bike helmet provides you with protection against serious injury.
If you are serious about biking, perhaps performing tricks or moving at high speeds, you might include elbow and knee pads. The greater the risks you take, the more protection you need while riding your bike.
You also require protection when you invest. There are a number of potential dangers associated with investing. Some assets are riskier than others, and carry a great potential for loss.
In these cases, you need to limit some of your exposure to risk by choosing investments that are less risky. Good diversity in your portfolio, and attention to other factors, can help you acquire the protection your portfolio needs.
If you aren’t wearing a helmet when you have a serious crash on your bike, you can be injured in a way that can’t be easily recovered from.
The helmet may not completely prevent injuries, but it increases the chances you will eventually recover and be able to ride again. With the right protection for your portfolio, you will be better able to recover from downturns — avoiding a serious portfolio disaster.
You Never Really Forget How
Just as you could probably get on a bike and ride right now — even if you haven’t been on a bike in years — in many ways you never really forget how to invest.
If you have good practice over time, and you understand to look for fundamentally sound investments and rebalance your portfolio, chances are, you will still be able to accomplish these tasks — even if you haven’t adjusted your portfolio in years.
Investing is like riding a bike in that as you begin to get into it, your old lessons and experiences will come back to you. You might wobble a little at first, but those basic principles will return.
Then you’ll be able to invest in your old style, just as I can go back to that old hill and ride down confidently.
Image courtesy of Naypong at FreeDigitalPhotos.net