About a month ago, tennis legend (and the greatest player of all time?) Roger Federer gave out his three best pieces of financial advice during a commencement speech at Dartmouth’s graduation ceremony.
*OK, fine. I don’t think his speech was specifically about investment advice. I guess he was more interested in life lessons, but each one of his lessons correlates surprisingly well with a financial principle.
1. “Effortless”… is a myth.
Federer begins his first lesson by recalling how he received a wake-up call from one of his opponents early in his career. At an event, a competitor said, “Roger will be the favorite for the first two hours, and then I’ll be the favorite after that.”
Ouch.
However, Roger realized he was trying to say:
“Everybody can play well the first two hours. You’re fit, you’re fast, you’re clear… and after two hours, your legs get wobbly, your mind starts wandering, and your discipline starts to fade.”
Tennis matches can be long, grueling events. Oftentimes, the winner isn’t who has the most skill, but rather the player with the best endurance and discipline.
This isn’t dissimilar to investing and building wealth.
Personal finance is not a hard science, it’s a soft skill. How you behave matters far more than what you know.
The funny thing is, no one thinks they need behavioral coaching. A survey conducted by the FPA asked investors to rank what they value most when working with a financial advisor. “Helps me stay in control of my emotions” was ranked last among the list of 15 attributes.
Every day we get bombarded with distractions that tempt us into short-term thinking. Whether it be a podcast, YouTube, Twitter, CNBC, a friend, or a family member, there is always someone willing to feed the small bit of anxiety in the back of our minds telling us to change our strategy or to stop investing altogether.
Behavioral coaching is one of the best things an advisor can do that no one seems to value.
Given that nearly 47% of all Robinhood users get on the app daily, which is just below the most successful social media companies, I’d say that helping investors stay on track and invest with a long-term perspective is as important as ever.
The question shouldn’t be, “How can I earn the highest returns right now?” but “What are the best returns I can get for the longest period of time?”
“Most of the time, it’s not about having a gift. It’s about having grit.
In tennis, a great forehand with sick racquet head speed can be called a talent.
But in tennis… like in life… discipline is also a talent. And so is patience.”
2. It’s only a point.
Take a look at this wild stat Federer shares:
“In tennis, perfection is impossible… In the 1,526 singles matches I played in my career, I won almost 80% of those matches… Now, I have a question for all of you… what percentage of the POINTS do you think I won in those matches?
Only 54%.
In other words, even top-ranked tennis players win barely more than half of the points they play.”
Arguably the best tennis player of all time only won 54% of his points.
Interestingly enough, the U.S. stock market has the same daily win rate as Roger Federer.
Dating back to 1927, the S&P 500 has been flat or up on 54% of all trading days. It’s essentially a coin flip on whether the market will be up or down on a given day.
However, as the following chart from Ben Carlson shows, if you lengthen your time horizon your odds of success dramatically increase:
Despite Roger Federer only winning a little more than half of his points, he won 20 Grand Slam titles.
Similarly, the U.S. stock market has had a total return (with dividends reinvested) of 319,258% since 1950.
3. Life is bigger than the court.
His final lesson is about life being about more than just tennis:
“A tennis court is a small space. 2,106 square feet, to be exact. That’s for singles matches.
Not much bigger than a dorm room.
Even when I was in the top five [in the world]… it was important to me to have a life… a rewarding life, full of travel, culture, friendships, and especially family… I never abandoned my roots, and I never forgot where I came from… but I also never lost my appetite to see this very big world.
Because life really is much bigger than the court.
Tennis has given me so many memories. But my off-court experiences are the ones I carry forward just as much… The places I’ve gotten to travel… the platform that lets me give back… and, most of all… the people I’ve met along the way.”
Do you know what’s even smaller than a tennis court?
The tiny screen on your phone that shows your bank account balance or your investment returns.
Of course, money is a very important part of life, but accumulating as much as possible is not the entire purpose of life.
At least I don’t think it is…
As I’ve stated many times before, money itself isn’t the goal—it’s simply a means to an end or a tool to live the life we want.
Ironically, in our pursuit of more and more money to gain some freedom over our lives, we end up forfeiting much of that very same freedom along the way.
“It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.” – George Lorimer
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.