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What’s Your Game Plan For Financial Success?

54199482 - a gold helmet, football and clipboard on a field. All of my children play multiple team sports. They have for years, and probably will for years to come. Over time, I have watched them all improve at their respective sports. I, on the other hand, am no better at watching them play. I am a nervous mom in the crowd. (My friends will attest to the fact that when my son pitches, I usually get up and stand behind a concession stand or some other structure that will block my view.) It is not that I am afraid my children will make a mistake or lose; I just want them to finish the game happy and uninjured. It’s the same wish for every parent in the stands.
 
My son, Max, tests my nerves a bit more than his sisters do. Not only do I hide when he pitches, but I say a little prayer every time he takes the ice, or runs onto the football field. But as scary as it is to watch him play high school hockey and football, it is also exciting. This football season has been especially exciting. As a member of the Falmouth High School football team, Max is headed to Gillette Stadium tomorrow for the Division 2A Super Bowl! All the kids on the football team have worked extremely hard this year, and their efforts have paid off with an undefeated season and their chance to win the state championship. And with their biggest game ahead of them tomorrow, I want more than ever for all of them to finish the season happy and uninjured. And, of course, I want them to win. Now I am no expert, but I think this year’s team has what it takes.
 
Believe it or not, there are a number of similarities between a successful sports team and a successful financial plan. Game management is much like portfolio management, and just as there are nervous parents watching the games, there are a lot of nervous investors watching their portfolios.
 
Within a football team, there are many different positions that play different roles, each just as important as the next. (The Clippers have an incredibly talented group of starting players, as well as a committed and hard-working scout team.) The same is true with a financial portfolio. Various investment vehicles play different roles, and an investor’s money should be diversified among them. Think of a football team with only quarterbacks on the roster . . . that team would not be very effective, would it? A portfolio should include a mix of investments: some that help an investor capture upside gains, and some that are “safe money,” helping to protect an investor from losses. A portfolio of just CDs might be safe, and a portfolio of all stocks might capture gains, but neither one is an effective long-term winning strategy.
 
Also, a successful football team must adjust to what is happening on the field. If the opposing team is able to stop the run repeatedly during the first half, a team may need to adjust to a more pass-heavy offense. Or, if a team is winning by a few touchdowns in the last few minutes, it may play a deeper defense, aiming to simply prevent a turnover.
 
Now, those might be terrible examples, but you get the point. Similarly, being able to adjust the financial game plan is one of the most important tools for a successful investor. Think of it this way: is it smart for those who had significant losses in their portfolio in ‘08, to simply stick with the same plan moving forward? I would argue it makes sense to make some changes. Learn from what worked (or, in many cases, what didn’t work) and adjust the plan to be more successful moving forward.
 
But the Clippers owe their success to more than the individual players and their ability to adjust to changing game situations. They also have great coaches and a process that works.
 
A couple of weeks ago, the football team left very early for the semi-final game in Leominster (against Marlborough). I asked Max why they were leaving so early and he explained that the team wanted to follow the same pre-game process that they do for every home game. Well—it worked! And as most of you Cutter Family Finance readers know, Jeff and I believe that the most successful investors also follow a process. By doing so, most avoid making emotional decisions that often result in mistakes.
 
Which brings me to my last point, every player must have faith in the engineer behind the process and the game plan: the coach. The coach uses his experience, his expertise and his general game knowledge to design a successful strategy. And the players know that everything the coach does is to help his players improve their skills and win the game. In the world of investing, this same role is filled by a financial advisor. With their industry knowledge and experience, advisors can put together custom game plans to help their clients reach their goals. It is just as important for an investor to have the same confidence in their “coach” that every football player has in his coach.
 
This weekend’s game at Gillette Stadium will be the most nerve-wracking one yet, I’m sure. But just as I tell the nervous investors who come to our office: with commitment to a process and the ability to adjust the game plan, we know that we will find success!
 
To all of our football players, good luck tomorrow! Go Clippers! To all of our financial players, remember to be vigilant and to stay alert, because you deserve more.