Position, Pace, and Power: How to win the financial race of life (October 2023)
The 48th Marine Corps Marathon will be held on October 29 in our nation’s capital. Over 30,000 runners from all 50 states, the District of Columbia, and more than 50 countries will participate in this year’s ‘People’s Marathon’. A marathon is an exhilarating event to participate in or even just to witness. In 1994, I went into NYC to see my girlfriend’s father run the NYC marathon. Her whole family was there, and we cheered him on, along with thousands of other spectators. The energy in the City that day was off the charts. I was so inspired, I signed up to run it in 1995, which happened to be the 25th anniversary of that race. To win a race like this, you must employ the 3 P’s: Position, Pace, and Power. I trained to finish, not to win, so there wasn’t much power at the end. But I sure felt like a winner when I crossed that finish line. And in my eyes, everyone who crosses the finish line on October 29 is a winner.
There are direct parallels between winning a marathon and winning the financial race of life. I was just beginning to learn this at that time having just started in business. Now after nearly 30 years, I am well versed in it. It’s all about the 3 P’s.
1) Position: This is where we set up the defense. We all know the adage in sports, defense wins championships. Well, the same is true in building your financial model. Your defense consists of the Protection component and the first 6 drawers of the Savings component (essentially safe places to store emergency cash). ROR does not matter at this point. Over the years, I’ve had some clients push back at that statement, and not want to build their model in the proper sequence. People want to get to offense too soon and crash, and they are knocked out of the race. Disability crash, lawsuit crash, market crash, job loss crash, pre-mature death crash, etc. When planning for our clients, we are never trying to predict a path. We are putting clients in a position to win, and to not get knocked out of the race no matter what life throws their way. And like a master chess player, we show clients how they can improve both their defense AND their offense with a single move. We are setting up their end game with their open.
2) Pace: Here’s where we build the Growth component and integrate & coordinate all three components: Protection, Savings, and Growth. We’re keeping the model in balance between statement wealth and contractual wealth, between safety/guarantees and risk, using income from our assets in addition to our working income to do things like convert term insurance, and to buy other assets, building even more wealth. Our focus is on efficiency, opportunity, and balance. I’ve seen other advisors run projections for clients to see how much money they’ll have at age 65 (or whatever age they plan on retiring) and offer strategies as to how to increase this number, typically by maxing out their risk assets and minimizing their safe/guaranteed assets. This approach is a fallacy, as the race ends at life expectancy, not retirement.
3) Power: This is where we hit the turbo charger. Why did you give up current enjoyment of your income all these years? To build up the biggest pile of money? No, you did it to have an income stream in retirement. Which would you rather have, $10M of assets or $8M? Don’t answer too fast! You don’t have enough info to answer the question. What if I added that the $10M produces $400k of income and the $8M produces $640k with less risk? Now, you can answer the question. Don’t conflate asset value or net worth with income stream. I know it’s hard to do b/c that is what we are taught by the world. The reality is, it’s not about who has the most money entering the retirement phase, it’s about who can create maximum income with safety. And since we’re talking about the end of the race for all of us in this stage, this is where our clients are doing amazing work and experiencing tremendous gratitude in setting up their legacy for their children and charities. Here’s a thought: what if you could have more money for your retirement and your heirs by giving money to charity? That can be a part of your Power phase as well if that resonates with you. But you have to be in Position at this point to do it!
The Rulebook that we follow and teach our clients, encompasses the 3 P’s. It was created for you to win the race, not to just finish, like yours truly in the marathon. The Big Three (Government, Financial Institutions, Corporations) have their own rules. And theirs are focused on them winning the race, not you.
As always, please do not hesitate to call me with any questions or to just say hello. Enjoy the foliage!
Best Regards,
Gabor