Financial Tatics for Life
planning tool, strategy and tactics, was used first in war, not finance.
Karl von Clausewitz, the great Prussian military writer, described
strategy as the planning the entire campaign and tactics as the planning
a single battle. So, strategy focuses on large resources to accomplish a
major goal. Tactics focuses on smaller, finite resources to obtain a
milestone on the way to the major goal.
comprises three important components: life goals that require money,
time horizon for the use of the money, and risk preference to accomplish
The investor should grapple with these three
components; don’t let others decide them. It’s up to you to decide when
to retire, the lifestyle you want, and how much you will save, and the
risk you can accept. It is the fundamental question of life planning;
"What do you want to do when you grow up?” We have experience helping
people make these strategic decisions and we will guide you; but you
should not ever delegate these important decisions.Financial tactics
also comprise three components: asset-allocation, portfolio management
and continuous review.
Asset allocation puts your financial
resources into categories of investments which differ on risk and
return. The goal is to achieve your required net worth, on time, with
the least risk. One way to reduce risk is to diversify holdings that are
somewhat uncorrelated. If one goes down the other may stay the same or
go up. Portfolio management chooses the mix of specific investments and
cash to accomplish your financial strategy. Finally, continuous review
monitors portfolio performance and your goals. When market conditions
change, and they certainly will, the portfolio holdings must be
Source: Strategy Tactics article final columns.pdf
example, if we see downward trend, we get out of the way. Also,
personal goals may change; you may want to retire sooner, or fund
college for two new grandchildren, or find you need less money than you
thought. If your goals change, and they certainly will, adjustments in
asset allocation and portfolio management must respond.
can you get this done? Do you want to do it yourself? Unless, you are
very smart, really like doing it, have lots of time, you probably
shouldn’t do it on your own. Professionals are likely to do a better
job. We believe that you should let professionals manage your financial
Command and Control
Consider another military
concept, this time from the navy. The United States Navy says, "Command
and control is an essential element of the art and science of naval
warfare.” Command is deciding objectives and ordering action; control is
monitoring progress and changing action after the engagement begins. If
you use a professional to accomplish your financial tactics, you must
have a way to evaluate progress to direct change.
About the same
time as Clausewitz, Horatio Nelson invented command and control for the
British Navy. Previously, naval commanders gave written orders to each
ship’s captain on specific tactics of an upcoming battle, "Your job is
to engage the French frigate, Belephon, at first light from a windward
position and destroy her.” But plans often are useless in the heat of
The wind could change. The Belephon could turn out to be
the larger Vérité. Often, during sea battles Nelson could neither see
through the immense smoke, nor give commands over the overwhelming
noise. His captains could not receive his guidance.
conditions changed in battle captains were conflicted. If a captain
changed tactics, he risked his career, because he might be seen to have
disobeyed orders. Even if he prevailed in battle by taking initiative,
he might be seen to be unreliable.
So there was a strong
incentive for captains to do what they were ordered, even when it was
manifestly wrong to do so.Nelson’s idea was to tell his captains what to
do and let them adjust to circumstances; Nelson commanded the captains;
the captains controlled the fight.
We can put together Clausewitz
and Nelson: the admiral commands the strategy and his captains control
the tactics. Think about that with your money: you command your
financial strategy and professionals control your financial
tactics.However, delegating does not mean losing control. You set the
goal; you determine what acceptable performance is and you regularly
That’s the continuous review part of
tactics.We will help assess your financial goals, and time horizon, and
help you articulate the risk you are comfortable with. We can help find a
middle ground when you and your spouse are in conflict. We will bring
to you several money managers and financial products to help with the
tactics. We will help regularly monitor your investments to respond to
To get started, answer the discussion questions on the
next page. Answer them by yourselves and then compare your answers.
Don’t be concerned if you give different answers; men and women tend to
look at these issues differently. Our discussion will help identify
topics to pursue.
We look forward to contributing to your financial future.We are happy to talk about how we help people.