Jill and I spent Super Bowl Sunday with about a half a dozen friends at a couple’s house in Plymouth. Our hosts were Kevin and Marie, who I wrote about and introduced you to last October. Kevin and Marie are in their mid-50s, both have professional careers, and have one daughter in college with two more on the way over the next couple of years.
Kevin is the world’s biggest Pats fan, according to Marie. Frankly, I have a hard time disputing her, given all the Pats paraphernalia in their media room and strategically place on their front lawn. Of course, we were all ecstatic to see the Pats win. However, after the game, Kevin wasn’t his usual upbeat and personal self. He was disappointed because the score was so low.
Hmmm . . . I guess we know which side of the over/under he bet on!
“Not all games are won on offense,” I said. “This game was all about the defense. And in the end, as long as you score more than the other team, you still win the game.”
It was quite a contrast from the last Pats game we watched together back in Week Two. The game was against Jacksonville and the Jaguars spanked the Pats’ defense. Being a Pats fan has been a bit of a roller coaster ride this season with some big ups and downs, but we all like how things turned out in the end.
As I was driving home, I got thinking. There are a lot of valuable lessons we can learn about planning a retirement strategy from Bill Belichick, Tom Brady and the New England Patriots.
I thought about the countless interviews the media held with Tom Brady leading up to the big game. Just about every interview I heard, Tom listed as a key to his success is his ability to tap into mental toughness and his drive to see things through. He’s talking about having a clear vision, a strategy, and a drive to succeed.
You see, it is just as important to have a clear vision, strategy and a drive to succeed as we pave the road ahead to retirement and beyond. Seeing the whole playing field is important both in football and in retirement planning. That means developing a vision for your retirement that will help guide your plans. For example, do you wish to travel? Will you downsize your home? Will you volunteer, learn a new skill, or go back to school? All of that takes careful planning to make sure your retirement system can accommodate your vision. We must understand the clear goals and targets that are needed to get there.
Mental toughness also means resilience in the face of adversity. After the first three weeks of this past season, the Pats were down with one win and two losses. But they came roaring back after that with a six-game winning streak. Don’t let setbacks derail your long-term goals. It does not matter whether you are in the accumulation or the distribution phase of your financial lifecycle – don’t let economic or personal financial setbacks derail your retirement system.
Kevin and Marie are a great example of how mental toughness applies to retirement. When they first came to see me in my Duxbury office last year, I learned that it took them 7 years to get back to even after they’d lost years’ worth of retirement savings in 2008. It reminded me of the AFC Championship game the Pats won against the Kansas City Chiefs: A late rally in the fourth quarter dragged the game into overtime, but the Pats ultimately won the game, paving the way for their Super Bowl appearance. Kevin and Marie made a lot of headway towards their retirement goals because they had the focus and discipline to make it happen.
I hear similar stories from many other clients as well, even ones who were better protected than Kevin and Marie were for 2008. It’s common to experience setbacks and financial losses and changes as time goes on. Just as it’s important for the Pats to be flexible and to adjust to changing conditions on the field, we all need a retirement system that can change as our circumstances do, but one that remains true and consistent with our vision for retirement.
One of the thrilling things about watching the Pats play offense is just how many different plays they’ll call in the course of the game. The Pats use every trick in the book to protect Tom Brady and to keep the defense on its toes. Not every snap needs to result in a touchdown or even a first down, though getting down the field is the ultimate goal. Football is a game of inches, and two or three short runs gains yardage and can move the chains – often with less risk than throwing down the field. Risk is a big problem in many retiree’s portfolios, and it’s something they often overlook or ignore.
When I first met Kevin and Marie last year, we identified risk as the single biggest challenge to their retirement portfolio. They’d been managing their investments through a retail brokerage and had employed a “buy and hold” strategy that left them open to a huge drawdown. Drawdown is a measurement of an investment’s high to low value over time. When we back-tested their strategy through 2008 to better understand their portfolio’s behavior, it revealed a potential hit of 50-55% if adjustments were not made.
It should be no surprise to anyone that Coach Belichick and his staff analyze a lot of game data to help them better understand how their opponents are going to play from week to week. In the same way, a Downside Risk Mitigation Model (DRMM) investment strategy employs analysis of quantitative data to help better understand when to be invested and when to pivot to a safe harbor, or in other words, to the sidelines. The goal of any DRMM is to capture gains when gains are there and to seek a safe haven when they are not, to potentially reduce downside risk.
This is why last September, Kevin and Marie felt it was appropriate to transition to a DRMM from their outdated traditional buy and hold system. By employing a DRMM, we reduced Kevin and Marie’s drawdown from more than 50% to less than 20%. Kevin and Marie can now pursue their retirement objectives with a more appropriate level of risk than they had before.
Kevin and Marie are getting closer to the goal line. They’re in the fourth quarter of the wealth accumulation phase of their financial lifecycle, inching towards the Red Zone. For them, an appropriate investment strategy built around capital preservation rather than just growth is critical. It’s important for them to have a strong defense from start to finish.
Kevin and Marie now have a clear vision, strategy and a drive to succeed which has paved the road to a very successful retirement. Do you? Should you?
Heck, they also host on fantastic Super Bowl party. Hopefully, we’ll get a chance to do it all over again when the Pats’ next season kicks off again in September.
Congratulations to the New England Patriots’ six Super Bowl victories, and to another great season!
Be vigilant and stay alert, because you deserve more.
Have a great week!
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at email@example.com. Remember to tune into our financial educational radio show every Saturday night from 5-6 on WXTK 95.
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