Everything in moderation

There was a time, five years ago, that I was really focused on increasing the gas mileage in my car. I would note my miles per gallon each time I filled up my tank and do anything I could to improve it. I would drive the speed limit on freeways in town. That was a solid idea.

That wasn’t enough though. I turned to questionable things like trying my best not to brake, whenever possible. I would try to anticipate slowdowns in advance and coast as long as I could without braking. Sometimes that didn’t work and I had to brake suddenly to avoid an accident. I would also take turns faster than recommended because I didn’t want to brake. After all, braking was throwing away gas. It meant I would have to accelerate again, hurting my gas mileage.

I can see now that I was too focused on saving a few pennies on gas each month. I failed to look at the big picture and realize that I was causing expensive parts like shocks and struts to wear out faster than they otherwise would have. Now, at 150k miles, I can’t help but think that the pennies I saved in gas are costing me hundreds in repair bills. Oops.

I see people make similar mistakes with their investments. They get so focused on keeping their taxes low that they don’t ever sell their winners to rebalance their portfolio. Such behavior, when taken to extremes, may save money on taxes, but that isn’t the most important thing. The most important thing is how much money you have left after taxes. Sometimes it makes sense to realize some capital gains in order to position yourself for better future growth.

The same goes for finding low cost funds. If you focused too hard on finding the absolute lowest cost funds, you would have all of your money in U.S. large company stocks. That doesn’t make any sense. It’s worth paying a little more to include small company stocks and international stocks.

Once again I am brought back to what my mom always told me, “everything in moderation.” It works for driving habits. It works for portfolios. It’s generally just good advice.

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