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CLS: What Can Traffic Jams Teach Us About Investing?


Driving in Seattle is difficult. The north-south Interstate 5 corridor can take hours to navigate at the wrong time of the day. For visitors (like me), a few ill-timed lane changes and a wrong turn can make the process even worse.

William Beaty, an electrical engineer in Seattle who moonlights as a traffic researcher, believes individuals can make a difference in the overall traffic flow by doing a few simple things differently than most drivers. Not only might these techniques make traffic flow better, they also provide some good advice for investors as we enter a new year.

Beaty’s research suggests overall traffic speed slows when too many drivers seek to jump into small holes, or have to slow to accommodate other drivers needing to switch lanes. Instead, he recommends creating gaps that other drivers can use to change lanes, exit, or merge into. By allowing other drivers to merge without significantly slowing, traffic behind them can benefit. Instead of the emotionally challenging stop-and-go traffic drivers detest, traffic maintains a steadier and higher average speed.

Investors would benefit from taking these ideas and applying them to their portfolios. Here are a few ideas investors can adapt from Beaty’s research. Our approach to markets matches these ideas well. CLS clients generally have a Risk Budget score that keeps their risk at a steady level suitable to their individual investment time horizon and capacity for risk. We have been big proponents of smart beta ETFs to implement strategies that used to be available only at much higher prices. While opportunities to jump in with both feet or hop out for short times seem tempting, we recommend finding a Risk Budget that allows portfolios to stay invested and benefit from the long-term performance of capital markets.



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