All across America, boys and their fathers are building a Pinewood Derby Car for the Cub Scouts. My son is no different. We actually just put the finishing touches on building a Pinewood Derby Car. And, last week when he was racing it at our local Pack meeting, I got to thinking about all of the lessons that you could take away from building a Pinewood Derby Car and apply to the world of investing. Here are a few things about investing that we all can learn from building a Pinewood Derby Car…
How Building A Pinewood Derby Car Is Like Investing
A Great Car/Investment Starts With Research
I was blown away by looking at some of the other Pinewood Derby cars that were at my son’s race that were not optimized to be as fast as possible. It only took me a little time and effort to Google and find where to put the weights on the Pinewood Derby car to get it to be the fastest car possible. I also bought a book to ensure that my son didn’t miss any steps in building his car, polishing the wheels, sanding the axles, and the like that would help when building a Pinewood Derby car and making it fast. The same thing is true with investing A little research can go a long way. There are so many resources available to investors that can help you find great stocks or mutual funds to invest in. You should start with site like Google Finance or Yahoo Finance when you are researching investments.
It Takes Hard Work To Get It Right
Wow! I had no idea how hard building a winning Pinewood Derby car would be. There was a lot of sanding, painting, cutting, chiseling, and the like that had to go on to make that Pinewood Derby car a winner. It was worth it to bond with my son, but man wow! The same can be said about investing too. If you are investing in individual stocks especially it can be a lot of hard work keeping track of all those companies and what they are doing in their industries. People with normal day jobs are at a disadvantage to other people like analysts and money managers who watch stocks and certain industries for a living. That is all they are doing day in and day out. It can be worthwhile for the rest of us but hard work nevertheless like building a Pinewood Derby car that wins.
Teamwork Is The Best Approach
It is hard for this dad to take a step back and hand the saw over to my son and let him take the reins building his Pinewood Derby car. But, it was and should always be a team event between the boy and his parent. Not only are you teaching him and providing him with a sense of accomplishment, you are also there as a backstop and a somewhat subject matter expert when he really needs help. Jeff Rose from Good Financial Cents bought up the fact that far too many people try to go it alone without the help of a financial planner when I interviewed him on the Money Q&A Podcast, Your Money Your Choices. Either people think that they do not need help, can do it themselves, or can’t afford to hire a financial planner. These arguments, of course, are extremely flawed. Everyone could benefit from a little help from teammates now and again, and help from a financial planner is no different.
You Will Have Better Returns If You Are Prepared
When my son and I got to the big Pinewood Derby race on race day, I was blown away by how many cars and subsequently fathers were not prepared to race. Several of the cars were either over weight or significantly underweight despite the race committee sending out the rules weeks in advance to all of the parents. There were frantic parents trying to carve bits of wood out of the car or add ugly weights to the undercarriage in the attempt to compete. If they had just taken the time to read the rules and prepare a little before hand, they would have had much better results on race day. The same, of course, is true for investing. You need to be prepared before you take the plunge into investing. If you do not understand something, then you need to study it. For example, I was trying to figure out the difference between market and limit orders a few years ago when I started investing in individual stocks. I kept reading that investors need to use limit orders instead of market orders, but I didn’t know why. So, I hit the books to learn about the differences. Being prepared has helped me as an investor immensely.
Spending Can Quickly Get Out Of Hand
Like any hobby, building a Pinewood Derby car can quickly get expensive. There are an enormous amount of add-ons that you can purchase to make your car better, faster, cooler, flashier, and the like. Many of these additional costs will have no impact on how fast the car will make it across the finish line. There are times when we look for an edge when investing as well and reach into our pockets to spend money either on fees, advice, self-help books, and a host of other potential drains on our wallets. If you are not careful, you can lose sight of the finish line whether you are racing a Pinewood Derby car or racing towards your retirement. While it is not a waste to get help from a financial planner, you must also monitor your costs carefully and put the brakes on high cost spending in both racing and investing.
A Little Bit Of Luck Never Hurts
It never hurts to have a little bit of luck by your side when you are Pinewood Derby racing just like when you are investing. While like playing poker, car racing, or investing, they are all skills and it is not luck. Luck does increase the intensity of your victory or downfall. So, while it may not be the most important thing, having a little bit of luck on your side in any endeavor cannot always be counted out.
Have you ever helped your son in building a Pinewood Derby Car for Cub Scouts or Boy Scouts? This was my first experience with building a Pinewood Derby Car other than my own when I was a little boy. What do you think? Are their some financial lessons that I missed? I’d love to hear your thoughts in the comment section below. Thanks!