South Africa can be regarded as a sports loving country. How can we use a tournament like the Rugby World Cup to learn valuable money lessons?
Have a goal
In order to win a world cup, a team needs to be able to win 7 games in row. One loss in the pool stages can be tolerated, but such a loss will probably result in a team having to play against stronger opposition in the later stages of a tournament.
Even though a team may win all their games, seldom will a team win without conceding a single point with even the best teams conceding at least a penalty or a try in a game.
Similarly, retirement planning is a long term strategy and in order to win the retirement game, short term ‘losses’ such as negative market returns over certain periods should be expected. However, cashing in retirement funds to fund exuberant and unnecessary lifestyle expenses such as luxury cars, is equivalent to losing a match. If you make such a mistake in your early twenties, you may still recover, but when you make such a mistake in the final stages of your working career, damage may be irreparable.
Have a plan B
During a tournament illness, injury or ill-discipline (red card) may result in key players or a captain being excluded for a number of games or even the remainder of a tournament. This will test the creativity of the coaching staff and the resilience of the remaining team members since the loss of one player may result in a number of positional changes.
In life we all plan for a happy retirement, but what if we are retrenched (temporary) or become disabled (permanently) on the way. Do we have an appropriate backup plan or maybe insurance to cover the loss and enable us to continue with our life?
Spread your risk
To accurately predict a winner before the tournament is difficult with personal bias and emotion often dictating preference. 118 Countries form part of the International Rugby Board, of which on 20 qualify for a world cup and only ONE can win. Quite often the pre-tournament favourite disappoints under pressure and an underdog performs well on the day.
Accurately predicting three out of four to make the semi-finals may be a lot easier. By diversifying your prediction amongst the top 5 or 6 teams you increase your probability of an accurate outcome (low risk). How you diversify is just as important. While an underdog may win one unexpected game, the top ranked teams will more often than not be able to progress to the play-offs where predictions will again be challenging.
Similarly the Johannesburg Stock Exchange (JSE) consists of approximately 400 listed companies of which the most prominent are referred to as the Top 40. By investing in a collection of these companies instead of favouring only one, you diversify your risk since different companies do not perform the same under certain market conditions. Mining companies may struggle when telecommunications perform and vice-versa.
Play beyond the final whistle
The game does not finish at the sound of the horn or when the time clock turns red. The game ends when the referee blows the final whistle, often a few minutes after the clock. In a close game, these last efforts may often be decisive between winning and losing or maybe just enough to earn a bonus point which could make a difference later in the tournament.
The traditional retirement age of 60 or 65 is rapidly fading. When Clem Sunter (co-author of Mind of a Fox) refer to the ‘Grey Factor’, he refer to a European phenomenon where more and more people are forced into retirement when reaching ‘retirement age’, start new enterprises since they are both experienced and more than able to perform meaningful work.
By extending your working life by five years, one can create a more favourable retirement outcome by continue to contribute towards investments for a further five years and simultaneously benefit from the power of compound growth AND reduce your income drawdown period by five years.
The combination of all these factors can typically double your financial wellbeing in, yes, five years.
In conclusion
- Identify your goals.
- Identify risk areas and plan around them.
- Don’t let small setbacks set you back too much.
- Keep on working as long as you can while not spending everything you have.
Surely there are many more lessons to be learnt. Please feel free to share your views below: