Much of investing and retirement income planning has to do with goal setting. Having a clearly defined goal for the amount of income you require, or the amount that you need to save and invest is crucial for your road map to success. Like a road trip without a map, if you have no goal, you can tend to wander.
Most people understand that you need a vision and then take steps towards that vision. The two tools to get you closer to your goal can be named as: Tactics and Strategy.
Where most investment plans go wrong is confusing Tactics and Strategy or substituting one for the other. To see how this happens and how to fix the problem, let’s define what each word means, define their purpose, and create a course going forward.
The game of football can be helpful in distinguishing the difference between a Strategy and Tactic. A tactic is a specific move or specific action. A strategy is an overlay game plan that uses tactics to its advantage.
For example, a forward pass, or a run is a tactic. It is a specific action with a specific purpose. The forward pass is designed to move the ball through the air down field above the heads of the defenders. A run is designed to push the ball through the defense to gain short yardage.
A strategy would be as follows. The coach knows that the defense is incredibly good at stopping runs and so the coach uses a number of forward passes in a row. Once the defense adjusts, the coach calls a run play and the defense is again thrown off. The coach utilizes tactics to accomplish a certain strategy.
What does this have to do with investing? Everything.
Too often it is easy to focus on rates of return, fees, contractual guarantees, mutual funds selection, etc. These are all tactics. They are specific items with specific focuses and specific outcomes. However, often the whole portfolio is viewed through the lenses of these tactics, completely ignoring any overlaying strategy.
When you look at the success of the portfolio only in regards to a rate of return, you are subjecting the portfolio to the measurement of only one tactic, not an overall strategy.
An investment strategy would take into account the tactics listed above, but in the service of a strategy. A strategy would be a written document that focuses many investment tactics towards the goal of inflation adjusted income, risk reduction, potential growth, and making sure that your nest egg keeps pace with inflation. It is important to note that no strategy can ensure success or protect against loss, but it's better than acting without a defined purpose.
It is important to make sure you have a strategy, otherwise it would be like a football team that focuses only on a passing game with no overall strategy. It would not take long for the other team to realize that that team only has one tactic up its sleeve and no strategy.
Do not leave your money, your income, and your legacy to chance. We believe first and foremost that your wealth deserves a strategy. If you do not have one for yours, give our office a call, we would be glad to put our team of wealth strategists to work for you.