Financial Strategy vs Financial Tactics: The Forrest & The Trees

By Frank Paul | More Articles by Frank Paul

In chess, the best tactics can’t win you the game if you don’t have a proper strategy in place, an End Game. Strategy is about setting up long-term goals and objectives, a vision for the future that motivates and pulls you. It involves understanding what you want to do and why you want to do it. Tactics are the actions that get you there.

The right tactics can bring big gains, but to really achieve financial success, think strategically.

"Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat." Sun Tzu

When visiting an adviser, most clients have a range of tactical questions on their minds such as how is my money going to be invested, how can I save interest on my mortgage or pay it off quicker, should I start a Transition to Pension strategy etc. Of course any prudent investor needs to be aware of the workings of their finances, however, tactics mean very little if they are not part of a bigger strategic plan. Outside the context of a strategy, tactics can be risky, work in isolation and don’t build or connect with other areas of your life. If we haven’t clearly set out our financial goals first, and formulated a strategy to help us get there, then we’re not necessarily going to be heading out on our intended path.

"If one does not know to which port is sailing, no wind is favourable." Seneca

Before enlisting any tactics, the first step of any financial journey should be about identifying exactly what we are trying to achieve. From there blossoms a strategy – which is a long-term plan of action designed to achieve a particular result. Devising a strategy that’s in line with our goals is a river that must be crossed before we can enlist the help of tactical measures.

A lot of our actions can be tactical. What type of funds to invest in, what to include in our portfolios, and which shares to buy. Without a clearly defined purpose, and the strategic plan that goes with it, we’re floating without any specific direction.

“Why” comes before “How”

A good planner will spend time to help you define your “why”, your main goals. Be it a five, 10 or 20 year goal that we are working towards, identifying the chief purpose of our financial plan is the starting point. Maybe it’s your children’s education or early retirement – regardless of what your priorities are, they need to be clarified in drawing up a strategy for wealth creation and management. Call it your master plan, one that is tailored to your hopes, dreams and ambitions.

Executing tactics without the proper strategy often leads to frustration and disappointment. Results are not often consistent and financial movements come in peaks and troughs. The nature of markets means that volatility and risk will always be with us; but having a strong strategic approach can help to minimise that risk and ensure a greater chance of success by keeping us on track and committed to the ultimate vision of your Plan.

"He who has a strong enough why can bear almost any how." Friedrich Nietzsche

It’s important not to lose sight of the purpose. Hence, strategy must come first in order to make sure that our actions fit into our overall goals. Tactics cannot save a poor strategy in a game of chess anymore that it can redeem a poorly orchestrated financial plan.

Seeing the forest for the trees

Each of us has a vast array of investment choices before us, and we often look for instruction on how to navigate these options. Whether it is a residential property, a direct share, an IPO or some form of managed investment, the options can appear endless. We can find ourselves unable to see the forest for the trees. Suffering from analysis paralysis, we spend so much time analysing, debating and discussing our options that we lose our focus.

Strategy and tactics are inextricably linked. But their relationship must be understood by the investor and applied appropriately in order for their effects to be fully realised.

A holistic approach where our tactics are driven by strategy is ultimately going to make them – and us – more successful.

Frank Paul

About Frank Paul

Frank Paul is Chief Operating Officer & Head of Advice Services with Spring Financial Group. Frank has over 20 years' experience in financial planning and investment advisory. Frank holds a Masters of Commerce and has authored literally dozens of financial education publications.

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