Small Adjustments

The 2013 America’s Cup regatta will go down in history as one of the greatest sports comebacks ever. Team USA was down 8 races to 1 to Team New Zealand in a series that needed 9 wins to claim the trophy. Against all odds, the American team won 7 straight races forcing the first winner-take- all race since 1983. Team USA claimed victory by crossing the line first in front of one of the biggest and loudest crowds to ever to watch the Cup. When asked about the changes that were made during the regatta to allow this comeback, Team Oracle USA’s skipper said, “The major change was the balance of the boat…We didn’t change anything in the physical sense… we just changed the setting…there were a bunch of little changes…then all of the sudden you have an edge.” I was struck by the skipper’s comments and how similar the keys he credited to their improbable comeback were similar to the actions investors should follow as they navigate the choppy waters of investing.

Adjust the Balance: The Captain talked about not changing the base structure of the boat, just the balance. Clients can be tempted to change the entire structure of their plan during difficult times. However, a change in balance to the weighting of a portfolio may be all that is needed. If the course is set correctly and your “vessel” has been built to meet your goals then a balance adjustment may be enough.

Little Changes make a Difference: A “bunch of little changes” can incrementally impact your portfolio over time. Paying close attention to expenses associated with your portfolio, being disciplined and systematic about portfolio diversification, minimizing taxes and fund turnover, and holding low cost funds are all small enhancements that can pay off in the long term.

Hold on to Your Edge: We live in a time where there is non-stop exposure to as much information as we want. Pundits are always telling us about the next event to cause worry in our lives and portfolios. It’s easy to get caught up in this drama and want to make changes in our investment plans at the first sign of the next crisis. Part of “holding our edge” is defining what is important to you, building a financial plan to give you the best chance of reaching those goals with the appropriate amount of risk, setting your course, and then keeping your eyes on the finish line while ignoring all of the external factors that could cause you to lose your course in finishing the race successfully.

The stories of athletes doing extraordinary things in the face of defeat are thrilling. The tension and drama surrounding sporting events hold great life lessons. Many times, these athletes resist the urge to panic in the face of adversity and instead fall back on their training and game planning, which ultimately leads to success. The same can hold true for each of us as investors. Often, we spend the time, money, and effort to identify where we want to go and how to get there but with the first sign of trouble we reactively make changes that are in opposition to what we planned. The 2013 America’s Cup team can teach each of us that not panicking in the face of adversity and making small adjustments to doing what we know is right can lead to great success.

Lytle Rather, CFP®,AIF® is co-founder and President of Rather & Kittrell.