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What the Monaco Grand Prix can teach us about our finances

The Monaco Grand Prix takes place this weekend. While the world of F1 might seem totally foreign to some, there’s more to relate to than you might think.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The Monaco Grand Prix is one of the glitziest events in the sporting calendar. The glamour and wealth on display might get you wishing for a bigger bank balance, but there are other ways the GP could get you thinking about your finances.

This article isn’t personal advice. If you’re not sure if a certain action is right for you, then ask for financial advice. All investments can rise as well as fall in value, so you could get back less than you invest.

Race and pitstop strategies

Teams in any sport don’t just turn up to a match or race and play. There’s always a plan. F1 is no exception and your finances shouldn’t be either.

F1 is about racing to win. While there might be thrills and spills along the way, they can only succeed by being consistent throughout the whole race. That’s a bit like investing. While you shouldn’t think of it as a race, there are going to be ups and downs so it’s important to have a plan and stick to it. Sometimes you might need a pit stop to make changes, but staying focused over the long term should keep you on track.

You might have some short-term aims along the way, but you should always be looking further into the future. There are always big decisions (like retirement) which might seem far away, but you should plan for now and adapt if you need to as you approach retirement. Investing is about taking a long-term view.

Risk vs reward

The last couple of years have been a perfect example of how volatile markets can be. There’s no way to completely shelter your portfolio from drops in the market. But you can help reduce the risks in your portfolio to try and limit the damage by making sure you’re diversified. Remember past performance is not a guide to the future.

The level of risk you take is partly down to personal preference, but it should always be linked to your time frames, goals and individual circumstances. If you’re looking at your retirement for example and you’ve got a long timeframe, you might be able to build in a bit more risk for potentially greater reward over the long term. That’s because your portfolio will have longer to grow and recover from any potential losses, though of course there are no guarantees.

Naturally, the opposite is also true. If you’re close to retirement, taking less risk is often essential in the lead up.

Learn more about risk

Considering all the variables

The track, the weather, other drivers’ race strategies, the mechanical state of the cars. There’s so much to take into consideration before an F1 race.

There’s even more to think about when it comes to planning your finances. Like a racetrack, it’s possible your life will take quite a few twists and turns. Some of them you’ll have control over, but others will come up on you quickly and you might struggle to find the racing line.

Whether planned or unplanned, life events coupled with the unpredictability of markets mean you can end up with a lot of ifs, buts and maybes. It can all be a bit confusing and you might feel like plan B turns in to C, D, E and beyond.

If you need help finding a clear path, a financial adviser can help you unravel your plans and help you put a strategy in place including some safety nets.

A ‘Halo’ for your finances

At the Bahrain Grand Prix last year, Romain Grosjean crashed and was lucky to get out of his car alive. Amazingly, despite the speed of the crash and the fire which engulfed the car, Grosjean escaped with only a couple of broken bones and burns to his hands.

There were a few things that helped Grosjean survive. His own bravery and quick thinking, the rapid response of the emergency services and the ‘halo’ over his cockpit.

The ‘halo’ on an F1 car was a controversial additional safety requirement introduced in 2018. It’s a titanium structure which sits over the driver’s cockpit to deflect flying debris and help protect the driver if the car rolls.

We hope that nothing ever happens in your financial life that’s as dramatic as Grosjean’s crash. Nevertheless, financial setbacks do happen and it's important to have some protection to help get you out of a sticky situation.

In financial terms, the best equivalent to a halo is a strong emergency cash reserve and life cover. We think it’s a good idea to have 3-6 months of essential expenditure held in easy to access cash. If you’re retired you should hold more – 1-3 years’ worth is sensible. This should help with any emergency expenses, like your car breaking down, and see you through tricky times like losing your job.

Life and critical illness cover are also essential to cover your family should the worst happen. It may be worth regularly checking your policies to ensure you have sufficient cover.

Marginal gains

Less weight here, some aerodynamics there, a fraction of a second off a pit stop. When fractions of a second can make the difference between victory and defeat, seemingly small wins can add up to make a huge difference.

The same goes for your finances. Perhaps the best marginal gain you can make is saving or investing more, or more regularly. All within your means of course.

By drip-feeding into the stock market it could mean the average price you pay for your investments ends up being lower than a single lump sum investment. Investors average out the price of buying investments and benefit from a phenomenon known as ‘pound cost averaging'.

This means your investment buys more units or shares when the price goes down, helping you smooth out the returns from investing in the stock market. Remember that if the market rises above the original price, fewer units are purchased and over time prices will fluctuate.

Investing more every month over the long term also means you get to benefit from compounding. Letting any increases build upon themselves and not touching it for the long-term takes patience – but the results could really pay off.

You can also make small changes to your portfolio which can make a big difference. We’ve already mentioned how risk relates to your portfolio. A big part of risk is a well-balanced, well-diversified portfolio. Sometimes, it doesn’t take much to unbalance, so a small tweak to put it right again can make a big difference. Don’t forget, diversification can affect your potential gains, but it also helps you manage your risk and reduce the impact of losses.

More about diversification

F1 is a team sport

Sure, it’s the drivers who do the laps. But there’s a team behind each driver who all have to work together to be successful.

When it comes to your finances, it’s important to make sure you’ve got the right people involved to help you make decisions together.

If you need some support, you could add a financial adviser to your team to help steer you in the right direction and nail down your plans.

You can find out more about financial advice from HL by booking a call with our advisory helpdesk. They won’t give you any advice during the initial call, but they’ll explain more about the service, explain if and how it could benefit you and the charges involved. If you decide to take advice, a financial adviser will then be in touch.

Book your call to get started.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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