A Game of Inches

October 30 2017

“On This team, we fight for that inch. We fight for every single inch.” Al Pacino’s speech from Any Given Sunday has racked up millions of views on YouTube, not to mention all those who have seen the movie, which is still hailed as one of the best sports movies of all time. Our team at Croak Asset Management not only loves the football message coach is sharing, but has taken it a step further, to apply to the financial advice and the strategies we suggest to our clients every single day.

Sure, we all understand the analogy as it applies to football, buts that’s not why the quote has garnered so much attention. “You find out life’s this game of inches. So is football. Because in either game, life or football, the margin for error is so small”. Every one of us can relate – athletes and non-athletes alike – to these words. The opportunity for success is there in front of us, in football and in life. But what can Al Pacino’s words tell us about investing in the financial world?

The financial field has quickly turned from a high flying game of Hail Marys – where hedge fund managers and day traders ruled the world – to a game of accumulating small advantages, those inches, towards long term success. The field can feel stacked against you, and without a solid game plan and a coaching staff who knows what it takes to win, it can seem impossible to find your way to victory in the here and now.

The average person isn’t expected to outperform the market by ten percentage points anymore and the idea of adding value has shifted from picking stocks to a whole new world of financial strategies. And as our friend Al so eloquently stated – it’s all about those inches.

Below are a few quick ways to capture extra inches in today’s economic environment. Understanding these concepts could get you that financial first down you’ve been looking for:

1. Stacking Assets It’s too common for people to invest all their accounts in the same way. Putting bonds inside a Roth IRA or your highest risk investments in a taxable account could be putting a serious drag on your portfolio. Understanding the tax benefits of what a 401(k) or a Roth can provide will let you make better decisions on where your investments should be located, minimizing tax burdens and maximizing money in your pocket.

2. Backdoor Roth IRA Don’t give up on a Roth if you make too much money! This account can be the crown jewel of an investment portfolio and gives you both flexibility and diversification in case of a change in the IRS. By recharacterizing a Traditional IRA, you can pay tax now and save for later.

3. Smart Beta Investments One of my personal favorites is the advent of ‘Smart Beta’ investments. These investments typically take a passive index, such as the S&P 500, and put an active tilt on it. For example, you can find equally weighted or low volatility funds that will perform closer to your desired risk tolerance. These are designed to capture different aspects of the market and can play a big role in your portfolio if you use them correctly.

4. Understand the IRS Take the word ‘understand’ with a grain of salt here. No one truly understands what’s going on inside the IRS, but it’s pretty easy to find the cliff notes version. You need to understand what different tax codes mean before you can truly be in control of your finances. Some of the best things to know are: Roth vs. Traditional IRA, How/what to claim in deductions, how tax returns work, and tax implications for a small business.

5. Rebalance Your Portfolio Understated and underutilized, rebalancing your portfolio one time per year can add up to 2% annually to your portfolio. The term rebalance refers to resetting your asset allocation to the previously desired levels. What most people don’t realize, however, is that rebalancing is an automated version of ‘buy low, sell high’. The top performers will be sold off, capitalizing on the gains, and the underperformers will be bought in their place. This philosophy seems backwards when we compare it to normal life, but in investing it can work, and it can potentially be very profitable.

These five ideas alone won’t make you rich, but the potential to add a few more inches to your financial ground game is certainly there. “The inches we need are everywhere around us. They’re in every break of the game, every minute, every second.” Value can still be found. It’s everywhere we look, and with a little effort you can add incremental value to your portfolio today that can add up significantly over time.

“On this team, we fight for that inch…because that’s the difference between winning and losing.” Not every investment has to aim for the end zone. But by working a little harder, paying a little more attention, and putting together a financial team of winners to help you navigate the future, you can still win this ballgame before the clock reads double zeros.