Positional Development
It is no coincidence that Tobi Lutke heads Shopify, one of the most impressive companies in the world. While the entire interview was a delight, I found the interchange below particularly well framed when applied to financial planning.
Tobi: "But the major reason why video games are valuable is because of this concept of transfer learning. For instance, people who are good at chess understand when it's time to perform tactics, and when it's time to focus on positional development. Not just in chess, but also in life."
Sriram: "During the pandemic, I've been trying to get serious about chess and its amazing how you can start to see its lessons apply to other situations in life too."
Tobi: "Totally. Because so often you're like, “Hey, I actually have no information right now to make a tactical move in the space. So here's how we use our resources to develop our position because, as a position improves, tactics will become available.” The understanding that there's always a way to get in a better position is crucial."
Most financial planning conversations over emphasize tactics. Clients are asked to determine specific goals that they don't (and shouldn't) really know. Assumptions are made on everything from inflation to future tax rates and spending. Monte Carlo simulations communicate an x % probability of a need for a course correction two decades from now. What do you think of the market right now? Will a new administration change the tax code? Given this possibility, should I engage in Roth conversions? Exercise stock options or not?
Rather, most times, the real value is found in evergreen positional development (earning more, saving more, spending less, automation, learning, cash flow management, time management, collaboration etc.) One must earn the right to engage in tactical opportunities that may present themselves in the future. Otherwise, expect limitations.
Retirement savings solely in a pre-tax 401(k) won't allow for tactical opportunities in retirement income planning. When there's a cash need, it's the only place to go. Alternatively, saving and investing ruthlessly among several accounts (pre-tax, Roth, taxable), businesses and real estate is likely to provide an opportunity to engage in very tactical retirement income tax planning.
And of course you may be thinking, "that would be great Matt, but saving 5% of my pay in the 401(k) is all I can do right now based on my income." If this is the case, perhaps the positional development to engage in at the moment is investing in your career, learning a new trade, or engaging in a side hustle to grow that earnings potential.
When working with our retirement plan participants, we'll often get questions around the portfolio and stock market from someone who has an account with a balance of $10k. And while that's real money, the focus should not at all be on the portfolio. It needs to be on how we go about increasing the savings rate. To discuss the portfolio would be a focus on tactics, and a complete disservice to the participant.
There's always a time and place for tactical decision-making. But it seems to receive 80% of the airtime and credit, when it really should be 20%. Positional development is akin to "worry about yourself" and "control the controllable."
One can always position themselves incredibly well despite not having any information to engage in a more tactical decision. "As a position improves, tactics will become available."
Don't put the cart before the horse.
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Source: The Observer Effect - Tobi Lutke
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.
