First the buffer, then the plan

In The Clash of the Cultures, John C. Bogle sets out ten rules for investors, and the second reads: time is your friend; impulse is your enemy. The Chapter 9 excerpt on johncbogle.com uses the rule as a heading and explains it: give yourself time, let compounding do its work, and resist the impulses that tempt you in when markets soar and out when they plunge. Bogle had already listed the same two sentences among his investment principles in a speech on 29 May 2001: “Time is your friend. Impulse is your enemy.”

That is no argument for waiting indefinitely. What the rule helps to untangle is the urge to start something long-term right now and the more mundane question of whether your short-term finances can actually carry it.

In retirement planning this is mostly a matter of sequence. A projection showing €200 a month and a larger figure later looks perfectly calm. The trouble tends to start earlier. What happens if, within the same few weeks, the washing machine packs up, the car needs a repair or one month’s pay comes in lower, and there is no separate pot of money you can get at? That is how a long-term plan ends up being stopped on impulse.

There is no product in any of this yet, and no figure that applies to you. The question is whether you are choosing a plan before you know whether everyday life would force you to break it off. That is why CapitalPath deliberately starts with orientation: understand first, then decide.

Elena is 42 and has a salaried job. On Thursday evening she sat through a webinar whose message boiled down to “you finally have to start.” Now a printed projection lies on her kitchen table, showing €200 a month at the top (an example, nothing more) and a larger figure at the bottom. Next to it is the garage bill for her car: €1,800. Her current account holds about €900.

A friend texts her: “If you don’t start now, you’re losing time.” Elena plans to set up the €200 standing order tomorrow. Then it dawns on her that she has no idea how she will pay the garage without raiding the new standing order straight away. She couldn’t say which parts of the projection are assumptions and which are fixed, either, or how many months she would manage without a separate buffer if her pay were lower for a while.

She sets nothing up that night. Instead Elena pushes the projection aside and writes three questions on a scrap of paper. How much money can I actually get at over the next few months? What would I stop first if things got tight? And what do I still need to understand before I commit?