Putting together a winning Investment Soccer Team For Retirement

After the recent release of David Beckham’s documentary, I figured it would be a great time to share a conceptual framework that I find super helpful when it comes to building an investment portfolio, especially for something that is definitely happening one day - our retirement. We take investments seriously and I don’t mean it’s like a game - this sharing is one of the many inspirations that I get from various disciplines which is applicable in monetary growth strategies.

SOCCER TEAM POSITIONS

Ever wondered why there are no serious soccer teams composed of all goalkeepers or forwards? Well, let me tell you a little story from my nephew’s grade 1 soccer team. There was this one team (Team A) that was having a rough time during a session. So, their coach (also a parent of a kid playing in Team A) had a brilliant idea: since they were getting outplayed, why not line up all of their little players in front of the goal? That way, the opponent wouldn't be able to score, and at least they wouldn't lose.

Well, it did kind of work for a while. Those kids made a wall, trying to block the shots from the opposing team (Team B). But you know what happened? Eventually, one of the six-year-olds moved the wrong way, and Team B’s shot made its way through Team A’s wall. Their strategy eliminated the possibility of winning, but it didn't prevent a loss in the end.

You see, real soccer teams have a clever mix of positions: forwards, midfielders, defenders, and a goalkeeper. Each player has different expectations and responsibilities, it's like a puzzle where each piece plays a vital role:

Goalkeeper: stops the opposition from scoring.

Defenders: focus on taking the ball away and distributing it to the team.

Midfielders: contribute in defense and offense.

Forwards: mainly responsible for scoring goals.

Now, individually, each position alone doesn't guarantee a victory. But a skilled coach knows how to put together the right combination of players in the right positions to give the team the best chance at winning. Sometimes, circumstances like the team's roster or the score of the game might influence the mix of positions, but it's never to an extreme extent.

YOUR INVESTMENT SOCCER TEAM FOR RETIREMENT

Guess what? Investing in a portfolio is quite similar. We can't predict the future with absolute certainty. Will there be a severe recession, or will things keep going smoothly? Will the stock market's recent hype settle down, or will it remain calm and rational? That's why we need an “all-weather” portfolio that can perform well in any environment, rather than going all-in on a specific outcome. Just like a soccer team can't have eleven goalkeepers or forwards, our portfolio also requires the right mix of positions to succeed. We wouldn’t want to have 11 David Beckhams or 11 Ronaldos in our team, right?

I am going to break down these different "investing positions" of a balanced portfolio for you:

  1. Goalkeeper - Think of the "goalkeeper" as the guardian of your portfolio, guarding against unexpected disasters. For instance, using put options on an index that would pay off significantly if things go haywire.

  2. Defender - investments with a low downside risk and moderate expected returns. It's important to note that relying solely on valuation statistics isn't enough, as even cheap stocks can get cheaper.

  3. Midfielders - These investments offer good expected returns while carrying moderate downside risks. They're like the versatile players who contribute to both defense and offense.

  4. Forwards - These are the investments with the potential for tremendous upside if they succeed, but they also come with notable downside risks, sometimes even up to 100%.

By combining these different building blocks, we can create an investment portfolio that aligns with our desired level of risk and reward. The "goalkeepers" and "defenders" might not bring in huge returns, but they provide us with the confidence to allocate portions of our portfolio that can - this is especially important when it comes to (early) retirement income planning as it is something that would greatly affect the basis of our second life’s available choices in creating happiness. It would be a bit reckless and unwise to have a portfolio entirely made up of "forwards." That wouldn't really meet our definition of investing, which aims for both the safety of our principal and attractive returns. On the other hand, going all-in on "goalkeepers" and "defenders" would simply be market timing that works well in one scenario but not in others, and it wouldn't yield the desired level of returns, especially when there is no more time to invest when the retirement age is approaching (refer to the 3 factors that determine our investment returns previously discussed in this post).

But here's the exciting part: Finding the right combination of "investing positions" allows us to strike a balance between risk and reward across different future scenarios. It's like crafting a winning team on the soccer field. So, let's put this knowledge to use and build a portfolio that sets us up for success, no matter what the future brings!

If you are interested in knowing more about how to tailor a winning investment plan to achieve your (early) retirement goals, schedule a call via this link for a chat to learn more.

If you are interested in learning more about our retirement planning process, you can visit this page.

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