As I watched the Super bowl recently, I was reminded of different teams I played on growing up. In team sports, there are certain fundamental principles that come to life. Teamwork prevails over a star player. Execution matters more than raw talent. Experience comes with age. Defense wins championships.

But the football season is now over and baseball is just around the corner. Not everyone finds baseball exciting, but I find myself exhilarated by the looming start of the season. Of course it doesn’t hurt that I’m a lifelong Cubs fan and we have a lot to be excited about.

As the season opens and the Junior Bronco league and T-ball leagues start-up, I’ve been thinking about baseball and how we can learn so many lessons from winning teams that apply to financial success. Baseball is a game of averages where the most successful hitters fail 70% of the time. A solid major league batting average is only .300. Think about that for a moment and try to explain it to a young player in T-ball (the only solution is to have them watch Kris Bryant strike out a few times).

At the start of a major league baseball season, 30 teams will vie for the title. But only one will win it. In the same way, early in life, most people dream of achieving their financial goals, but very few will actually realize their dreams. What do these two have in common, and how can you stack the odds in your favor? Here are my perspectives. 

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"Financial planning is the cornerstone of wealth creation. This is why I am so committed to helping my clients build the right financial plan, tailored to their unique family."


Lessons learned from winning baseball teams

As someone who follows the game pretty closely, I’ve noticed a few traits that separate teams who consistently compete for and win major league titles versus those who do not. Here is what I’ve observed. Wining baseball teams have four critical characteristics:

  1. The right roster
  2. The right strategy
  3. The right game plan
  4. The right adjustments at the right time

Let’s explore each of these in greater detail. 


The right roster

Winning teams have all sorts of specialists: shortstops, second basemen, outfielders, pitchers, catchers and even team trainers and physicians. But they need a leader to help unite everyone around a common vision and strategy. That is the role of the manager.

As a Cubs fan, I have been so pleased to see the Cubs become a contending team under the leadership of Joe Madden. He understands the statistics. But he shines when he creatively applies statistics to actual game strategy. He knows how to get the details and then craft solutions.

In the same way, you need a team to help you achieve your financial goals. What type of people do you need on your team?

First you need a financial planning professional who is your Manager. He or she is the senior strategist who knows all the players and can make the right things happen at the right time. I serve this role for my clients. I’m the client advocate and I coordinate with other professionals. I know my clients and I often represent their interests with other team specialists. This saves my clients a lot of time and energy.

Second, you need the right professional advisors. The other professionals that I coordinate with may include a CPA, attorney, insurance specialist, estate planner and others, depending on my clients’ needs.

Your Whitnell financial advisor is the manager of your winning team, the one individual inspiring and leading all of the other players and guiding the team toward success. 


The right strategy

Some baseball teams are built for power, others for speed and still others for defense. But the old maxim still holds true: defense wins championships.

Your financial situation needs to be built on a rock-solid defensive position. Here is what I mean. Drawdowns in the portfolio you’ve worked so hard to accumulate can be very painful and difficult to recover.

If you’re investments are down 20%, what does it take to get that 20% back? It’s not simply a 20% rebound – the math doesn’t work that way. Assuming a 10% per year return, here is what you might expect:

  • If you’re down 20%, you need 10% returns for 2.34 years.
  • If you’re down 30%, you need 10% returns for 3.74 years.
  • If you’re down 40%, you need 10% returns for 5.36 years. 
  • This timeframe is significantly longer if you assume a 7% annual return, which is certainly a more reasonable benchmark if one were to project returns for retirement planning.

What’s the right defensive strategy for your unique situation? If you’re wealthy, there are different ways to approach how to construct your portfolio and strategy. Here are some scenarios.

Income approach: I’ve worked on situations where the family invested a certain portion into an immediate annuity to satisfy current living expenses for life and then constructed a portfolio with a time horizon looking out to the 2nd and 3rd generations. This way the portfolio is managed for the children and grandchildren with a longer time horizon, which significantly reduces any reason to pull out funds in a bear market.

Total return approach: In this scenario the client and advisor determine the best approach is to construct the portfolio with a moderate risk profile. This is a dynamic approach where the timing of rebalancing and freeing up needed cash flow is managed together. This strategy requires the client to maintain a certain discipline with spending, communicating ahead to the advisor when cash is needed.

If you are young and working, it’s important to invest regularly. We find that utilizing a 401(k) for younger working people makes a lot of sense for the majority of their savings. By using pre-tax dollars to dollar cost average into the markets, they realize a tax efficient and sustainable way of investing into a diversified portfolio with discipline.

Of course, depending on your income level and savings, you could kick start your retirement funding by maximizing your 401(k) contributions while also investing regularly in an investment strategy outside. I find that most younger professionals do not have that much disposable income in their 20s and 30s – and that’s okay. The important thing is to get started at a young age.

Many retired individuals are relying on their investment portfolio for annual income needs. The ability to structure a portfolio with enough income to meet living expenses in retirement is more difficult than it used to be. In previous decades, bonds paid more interest and the rate on money market funds was greater than zero!

In the current market environment, with zero interest rates, one must diversify while still focusing on yield. This is a balancing act. The portfolio will certainly have more volatility than in years past and investors need discipline and the appropriate income so they are not forced to sell when the market is down. If one is forced to sell during a market correction, it’s very difficult to make it back.


The right game-plan

Winning baseball teams approach each game with a specific game-plan. The plan usually changes from one series and one opponent to the next. Pitching matchups are a key part of the chess-match that managers build their game plan around. The manager will approach a new multi-game series with a different strategy in order to maximize the probability of success.

For you, each year is like a new series. You need an update to your game plan based on your updated goals and changing market conditions.

In this day and age, you need to think carefully every year about how to be globally diversified, opportunistically rebalanced and investing on a regular basis. Here are my thoughts on each of these.


Globally diversified

Since 90% or more of investor returns come from asset allocation, it’s paramount to diversify globally and monitor risk first and foremost. By diversifying your assets into different asset classes, we are admitting that future returns are impossible to predict.

We do, however, tactically under or overweight certain asset classes when the market gives us opportunities. For example, oil prices were crushed in the past 18 months. This created the opportunity to take advantage of higher future oil prices.


Opportunistic rebalancing

Rebalancing a portfolio to set targets is critical for maintaining risk measures. I prefer to rebalance when the market is overextended either to the upside or downside (the classes which have outperformed are sold and the underperformers bought – buy low, sell high). One must monitor the portfolio, of course, but the risk and return benefits are significant compared to the standard monthly, quarterly or annual rebalancing.

Market distortions do not happen on a calendar basis and can only be exploited if timed appropriately based on valuation metrics. I’m not talking about timing the market. I’m only talking about taking advantage of markets when the pendulum swings too far in either direction.


Investing on a regular basis

Add to your portfolio on a monthly or quarterly basis. This is called dollar cost averaging and helps to maintain a disciplined approach. If you are consistently buying, you are increasing the likelihood of buying at the right time by averaging into the market. Over time, this enhances performance.


The right adjustments at the right time

A baseball team almost never ends a season with the same roster they started with on day one. The biggest set-backs typically come from injuries that take key players out of the game. But sometimes players under-perform and have to be replaced by other players. The point is simply this. A baseball manager never knows, on day one, how the season will progress. The manager has to be ready to make changes based on the dynamic circumstances they face.

In the same way, it is highly unlikely that the financial plan you have in place today will go exactly the way you hope. Some investments may need to be traded up for others. You may need to add new specialists over time. In fact, the plans we build for you actually take into account the need for course corrections at key moments in the game.

This is why it’s so important to be in regular communication with your Whitnell financial advisor. We especially want to know of major changes in your life: marriages, divorces, births, graduations, retirements and other life events. It’s important that we talk about these not only for you and your spouse, but also for your loved ones.

When we know of changes that are coming down the road for you, we can bring all sorts of financial strategies to bear on your behalf. In so doing, we have helped our clients reduce taxes and retain a greater share of their wealth, pass wealth to loved-ones and charities tax-efficiently, take advantage of market volatility by making lemonade out of lemons and even protect wealth from unforeseen and potentially catastrophic events.


Should we talk?

Winning baseball teams deploy these four strategies and you can too. But success in your financial life, much like success in sports, requires teamwork. If it’s time to think about a better way to manage your franchise, let’s have a conversation.


The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.