Baseball has always been a passion of mine. I can remember when I was a kid, playing catch in the backyard with my brothers. I grew up in a military family, which meant we moved every few years. But we made sure to build a pitcher’s mound in every backyard we had, so we could keep practicing and playing ball.
Baseball is a sport that is prone to teaching life lessons to players and fans alike. With the Major League Baseball season right around the corner, I thought this was a great time to discuss some lessons that baseball can teach about financial planning.
Importance of a good coach
You need an educated, dedicated, and hardworking coaching staff to lead a baseball team to a winning season. Rarely do you see a poorly coached team win. It often takes the coordinated efforts of the manager, hitting, pitching, and fitness coaches to pull it all together, each offering players different skill sets and experiences to cover all aspects of the game.
Like baseball, a team of credentialed and experienced professionals are key to helping people navigate their financial future. Most people are focused on their passions, their work, or their families and don’t have the bandwidth to spend time with their personal finances. This is where a financial planner can provide education, direction, and coaching to help guide clients down a path for success. In addition, we believe there is great opportunity to provide behavioral coaching by working with clients to protect their portfolios from emotional reactions.
Behind every great team is a great coaching staff helping their players sift through the noise and focus on what is important for a successful outcome.
Build a balanced team
To be a winning baseball team, you need a group of players that have different skills and talents to complement one another. Having a team filled with the best hitters in the league may score you a lot of runs, but that team is probably going to lose a lot of games because they cannot play defense. And the same goes in the opposite scenario. A collection of defensive standouts, base stealers, power hitters, contact hitters, and a great pitching staff is what every great team possesses. The diverse collection of talent, all working together gives you the best chance for success.
This is also true for your portfolio. It is optimal to have a diversified collection of investments in your investment lineup. Equities, both domestic and international, lay the foundation for long term growth within the portfolio. Fixed income investments, such as owning individual bonds, provide protection and play defense during volatile equity markets. Alternative investments, such as private equity, hedge funds, and managed futures, have a very low correlation to the stock and bond markets which provides further diversification for your portfolio.
These different types of investments work together within your portfolio to try and increase returns while limiting risk, just as a teams’ leadoff hitter gets on base and their power hitter hits a double to score him from first base.
Watch out for curveballs
One of the great aspects of baseball is watching the battles between pitchers and hitters. Pitchers trying to strike out hitters and hitters trying to hit the ball over the fence. It’s one of the most entertaining dynamics to watch in baseball. In my opinion, hitting a baseball is one of the hardest things to do in all of sports. The reason hitting is so difficult is because of the variety of pitches that can come at the batter. Pitches vary in location and speed and hitters have very little time to react and swing the bat. If a hitter knew with 100% certainty a pitcher was going to throw a 90-mph fastball for a strike, there is a much higher likelihood that the hitter will be able to make solid contact.
But now imagine that the hitter, fully anticipating the same fastball, is instead greeted with a curveball. The result would likely not go well for the hitter since he was not prepared for this unexpected pitch.
Preparing for the unexpected or planning for the future, is one of the main objectives of financial planning. It is important to plan for different unexpected ‘what if’ scenarios that could impact your financial future. Therefore, we suggest the need to establish an emergency fund with 3-6 months’ worth of non-discretionary expenses in case you lose your job or must repair the roof on your home. It is important to have an appropriate amount of life insurance and wills in place in the event of a premature death. It is important to construct a diversified investment portfolio that is positioned to participate in the upside but also provide protection in market downturns.
Everybody loves hitting fastballs down the middle. But unfortunately, life might throw you more curveballs than you expect. No matter what the risks are that you may face, it is important that your financial plan is equipped to deal with those curveballs that you are sure to experience.
Get better everyday
The baseball season may start in April and end in October, but it is a year-round sport. Whether it’s a day at the batting cage, offseason workouts, or Spring Training, baseball players are consistently trying to improve their game, fill any gaps they may have, and come to the field the next day better than they were yesterday.
While there is no offseason when it comes to your financial plan, there are always opportunities to reevaluate a financial plan and try to identify any weaknesses that could be strengthened.
Have your goals changed? Then it may be time to review your asset allocation, time horizon, and estate plan. Have you looked at your 401(k) lately? It may be time to rebalance or adjust your contribution percentage. Did your portfolio lose value this year? There may be an opportunity to do some tax loss harvesting. We believe through proactive outreach and communication, we can help you detect some of these gaps and help you come to the field better than you were yesterday.
Master your emotions
Throughout my many years of playing baseball, all the way from tee-ball to professional baseball, the attribute I noticed that set the best players apart from all the rest was their ability to control their emotions. Whether they made a costly error or hit a clutch home run, they were never down in the dumps or overjoyed. They understood that it is a long season and a lot could happen. Because of this they knew how important it was to stay disciplined and stick with their routine.
There will be strikeouts and there will be home runs when it comes to personal finance as well. The key is to not become too dejected or too elated by what happens during a given year. Instead, stick with your plan to better ensure you’ll come out on top.
