Nick Saban will lead the Alabama Crimson Tide in pursuit of the school’s 17th National Championship; his sixth. Alabama wins a lot of football games and so does Nick Saban, however, he doesn’t focus on results or wins. His key ingredient for success is the process. He wants his team to win the day and improve daily.
His process strategy started at Michigan State while working with one of the school’s psychology professors. The professor pointed out to Saban and the players that the average football play lasted just seven seconds. He taught the players to focus on those seven seconds and not the score.[1]
Investors would be wise to take some coaching tips from Nick Saban and follow a process. It will allow them to shift their focus from “winning” the investment game to a daily routine that will help them create long-term wealth.
Here a few ideas to help you develop your own process.
- Invest on a regular basis. An automatic monthly investment into your company 401(k), IRA or investment account will allow you to save money without emotion. This process is known as dollar-cost averaging and you’ll buy when the market is up, down or sideways. For example, a $1,000 monthly investment in Dimensional Fund Advisors Small Cap Fund (DFSTX) for the past years ending on 12/31/2017 is now worth over $274,000, an average annual gain of 13.39%. It did well despite a 40% drop in 2008.[2]
- Rebalance your accounts annually. A $10,000 investment into both the Dimensional Fund Advisors Small Cap Fund and their Intermediate Government Fund ten years ago started with a 50%/50% portfolio. If you did nothing, the small cap fund now accounts for 64% of your portfolio, too much risk based on your original allocation. Rebalancing your accounts annually will allow you to maintain a 50%/50% asset allocation.[3]
- Implement a buy and hold strategy. Trying to time the market is a loser’s bet and it will under perform a buy and hold strategy over time. A diversified basket of stocks has never lost money over a twenty-year period.[4] The long-trend of the market is up and one way to profit from the rise is to buy and hold quality companies.
- Buy the dip. The market fluctuates daily so when it drops use it as an opportunity to buy quality companies at lower prices.
- Ignore the scoreboard. Quotes for stock prices are constantly available allowing you to track your portfolio’s value in real time. Short term market moves might force you to act emotionally or irrationally causing harm to your long-term financial goals.
- Review your accounts. An annual review of your financial goals and investment accounts will allow you to perfect your process. What worked? What didn’t?
- Hire a Certified Financial Planner ® who can help you formulate a game plan based on your financial goals. A planner, like a coach, can help you improve your results.
Investing isn’t a game and not having a plan or process can have negative consequences. To increase your odds of success, spend some time this month defining or refining your financial goals. It will take more than seven seconds, but it will be worth it once you’re done!
What happened yesterday is history. What happens tomorrow is a mystery. What we do today makes a difference. ~ Nick Saban
Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX. For more information please visit www.parrottwealth.com.
January 3, 2018
Note: Past performance is not a guarantee of future returns. Your returns may differ than those posted in this blog. Investments are not guaranteed.
[1] http://www.businessinsider.com/alabama-coach-nick-saban-process-2015-8, By Richard Feloni, August 12, 2015.
[2] Morningstar Office Hypothetical Tool, 12/31/2007 – 12/31/2017.
[3] Ibid.
[4] Morningstar Ibbotson® SBBI ® 2015 Classic Yearbook, 1926-2014.