A Great Movie
Nothing like a good movie recommendation, right?
My wife and I watched The Boys in the Boat this week, and I just thought it was a wonderful film. I really enjoy movies set in that era, and I’m a sucker for a good ol’ based-on-a-true-story.
For those of you who like to say things like, “The movie pales in comparison to the book,” as someone who read the book as well, this movie held its own.
I know very little about the sport of rowing, but I picked up a few things from the movie. One concept that stuck with me was how the coach didn’t want his team to get too far behind in the beginning, but also didn’t want them to overextend themselves too early in the race. There was this balance of staying within striking distance while also saving some in the tank to eventually strike. By the end, the goal is to “leave it all on the field,” and exhaust every last ounce of effort to push through the finish line.
The Coxswain
This movie stuck with me because there are some strong parallels between rowing and financial planning. In rowing, there is one individual who sits in the stern of the boat, facing all of the other rowers, and has no paddling responsibilities – this person is called the coxswain. The National Collegiate Athletic Association (NCAA) describes the responsibility of a coxswain this way:
While the crew will go into each race with a strategy, it’s the coxswain’s job to keep them on track to meet their race goals, as well as make any tactical changes throughout the race.
A financial planner very much serves this role when it comes to an investor’s financial plan. You walk into your financial life with a general plan – a direction you plan to row – but then the variables of life and markets force you to be flexible and enduring along the way. The NCCA also goes on to describe the psychological responsibilities of the coxswain:
Beyond making tactical judgements, the coxswain is there to encourage her crew. She can see the pain of racing on their faces and knows when they’re getting tired. The coxswain is a constant voice of reassurance to her rowers, pushing them forward when they feel like they want to give up.
I can’t emphasize enough the importance of these psychological responsibilities for a financial planner as well. The perfect plan is meaningless if that plan can’t be adhered to because of fear, exhaustion, greed, etc. It’s the responsibility of the advisor to know their client, to know what makes the investor tick, to earn their trust, and to make sure they remain on course and at pace.
Adjusting Along the Way
I often remind readers that it’s not a “financial plan” but rather the constant action of “financial planning.” One should have a “base case” plan to act as a framework and to set strategy, but that plan should be revisited regularly for tactical shifts and adjustments.
One simple example here is setting one’s annual distributions; how much an investor plans to withdraw from their portfolio annually. Often, this one simple metric – a withdrawal rate – can be the determining factor of whether a financial plan will be a success or a disaster. So, on day one, you right-size that withdrawal figure for your situation. Factors like the size of your portfolio, the type of investments, other income sources, spending habits, etc., will be used to determine this figure. Next, just as the coxswain would, the financial planner surveys this withdrawal rate and adjusts the pace based on the changing environment. Things like market performance, longevity, and legacy aspirations can allow an investor to toggle withdrawals up or down from that original plan.
Often, we will start by creating a financial plan that pencils – something viable for a multi-decade projection using modest return assumptions. Then, as we get to know the client better, we will seek to suss out what other financial aspirations lie beneath the surface. Sometimes I’ll call this “dreamstormin’,” and I’ll ask someone to describe some financial dreams they’ve never thought possible. My goal is to essentially put more pressure on the financial plan; I want to see how much weight the plan can endure, so I know the outer limits of the plan. Much like a coxswain in practice is seeking to learn the physical limits of his rowers. In this exercise, it’s more common than not that these dreams that felt far-fetched from the investor’s perspective could reasonably be fulfilled within the constraints of their plan.
Much like the rowers were taught to push the limits of their endurance towards the tail end of the race, a financial plan can also ratchet up spending as the finish line nears. A common adage in the financial planning world is to avoid “outliving your nest egg,” a euphemism for running out of money. Running out of money isn’t always about “is there enough” as much as it is about “how long does this need to last.” If you retire at 30, and we assume you live until 90, then we are dealing with 60 years of variables. We need to make assumptions about returns, inflation, taxes, health, etc. Move any of those factors up or down 1% and allow them to compound for 60 years, and it’ll create a wide dispersion of potential outcomes. Like a sailor falling asleep as he tugs the wheel ever so slightly off course, the longer he sleeps, the further off course he will be.
For someone later in life, that dispersion of potential outcomes becomes narrower. The reality of a shrinking longevity – every day older is one less day to plan for – means one can often increase spending and apply more pressure to the financial plan as they age. Sometimes this will mean expanding travel plans, fulfilling bucket list items, or even giving now what you already planned to give later (inheritance). The coxswain of the financial plan should be initiating and leading these conversations.
The Importance of Good Equipment
Throughout the movie, there are sprinkled scenes of George Yeomans Pocock working on the boat. The boat, also referred to as the racing shell, is designed with precision and care. Pocock, a former coach himself, had a reputation for his craftsmanship and deep knowledge of the sport he adored. This reminded me that you can have a goal in mind – win the race – and an excellent team of athletes prepared to compete, but you also need the necessary equipment.
When it comes to financial planning, you can have a list of financial goals in mind, be accompanied by a credible advisor/fiduciary, and yet you still need an investment strategy that you will use to run the race. Personally, I became enamored with dividend growth many years ago, not primarily because of its impressive long-term results but rather how well this strategy works from a financial planning perspective. As I mentioned, one of the main objectives of a financial plan is to create a viable withdrawal strategy that will satiate the expense needs of the client. The consistent, reliable, and growing cash flows of a dividend growth strategy create planning clarity that you just don’t get for most other investment strategies.
A simple study of the history of financial markets will reveal that the stock market, from a price perspective, is volatile, hard to forecast and challenging to build a plan that relies on unpredictable price movements. On the other hand, dividends are much less volatile, much easier to forecast, and jive well with matching future expenses to the expected income production of a portfolio. Then the only riddle to solve is to create enough income to match the withdrawal expectations, which a simple indexed portfolio (low yield) won’t typically accomplish. Hence, my attraction to dividend growth and why I believe this strategy takes out a lot of the uncertainty within a financial plan.
Takeaways
We will wrap up with a recap of my major takeaways:
- You should watch the movie, Boys in the Boat.
- It benefits you to have a guide in the boat, a coxswain for your financial plan.
- It is ok, and even encouraged, for withdrawals to ramp up as one gets closer to the proverbial finish line.
- The quality and maintenance of your boat matter in the same way that your investment strategy needs to be equipped to meet the needs of your plan.
I will end with one of my favorite quotes from the movie. At a time when one of the rowers is getting distracted and letting his personal life interfere, the coach pulls him off the boat for a substitute on hand. The young man seeks out the coach, as he wants back in the boat. The coach invites the young man to rejoin the squad and ends with this powerful statement: “It isn’t easy to trust every other person on that boat as much as you trust yourself. But it’s not about you. As good as you are, it’s not about you, or me, or anybody else. It’s about the boat.”
As I get older, I realize more and more that I just don’t know everything. I realize the value of team, the importance of leaning on specialists, and the power of trust. On your financial journey, you aren’t going to be the only one in the boat. You will row alongside a financial advisor, your spouse, your legal professional, your tax counsel, etc. Each one plays a role, but elevated above all is your financial goals and coordinating as a team to row your race well.
Now, go watch the movie 🙂
