A few years ago, I took management training at my current employer. Honestly, most of the training was a very generic soft skills primer. The reality is my employer probably could do a better job preparing new managers. In any case the training session they provided focused the most on the intermix of tactics and strategy.
Ensuring you see Strategy in times of Tactical Need
The number one saying the training kept repeating was take time to go to the balcony. Essentially by saying take a regular balcony moment, they meant that you need to take a step back from the day to day. It’s very easy as a manager to get stuck in the mire of today’s problems and lose track of where you want your organization to go strategically. Without that perspective, the fires of today remain as the fires of tomorrow, and your tactics never change. By taking a step back, and observing where you are you can change your organization’s direction and make your life easier later. At least that is the theory.
Ensuring you see Tactics in times of Strategic Planning
In personal finance keeping an eye on your strategy can also yield dividends (pun intended). If you just focus on paying today’s bills and having fun today, you miss out on the opportunities tomorrow. Things like building financial independence, choosing an asset allocation, saving day in and day out, and even your career require that long term strategic look.
But the thing is, while my management training focused heavily on stepping back to see the forest over the trees, I’ve also seen managers take it to extremes. I’ve seen a manager so obsessed with strategy and the long term that his team often delivers failures because he does not pay attention to the details. The tactics of the day to day are just as important to a manager’s success as the strategy.
In personal finance the same is true. Sure, my savings rate and asset allocation are an aspect of my strategic direction. However, you can also miss some very important tactics while focusing on strategy. For example, expense ratios on investments. Sure, they are a tactic for the here and now, but a fee of 1% a year compounded over the life time of an asset can be massive. Take the hypothetical $10K investment. 1% a year in fees over 20 years would take over $7K in return (assumes 6% return on investment). That would amount to 30% less in dollars. The tactical error would have a massive impact on your long-term achievements.
Tactics and Psychology
The thing is though; good tactics might not even have a math component. Take the concepts of index investing and dollar cost averaging. Mathematically both are superior strategies/tactics to achieving the best return. But humans are not robots. We tend to make many investing mistakes and often need a psychological boost to stay with the right strategy in both the up and downs of the market. So, you might have tactics that you utilize to get you over your tendencies to stray from your strategy.
For example, if you tend to invest your money directly into companies to feel like you have control, you might use a tactic to fulfill this desire. You might be able to combat this tendency by setting aside a small portion of your portfolio for active investing. The impact to your overall portfolio would be small, but you would have the psychological benefits to keep you from tweaking your overall direction. Another example might be if your gut tells you the market may collapse, but you know trying to time the market is fool hardy. To satiate your gut, you might time a very small portion of your portfolio to give yourself either a reminder of how fool hardy it is or a feeling of accomplishment if you get lucky. The point is personal finance tactics are not all about money. In the tactics come the emotions that can also affect your long run strategy.
The intermix of Tactics and Strategy
I’m not sure if you noticed the same thing in this post that I have while writing it. I started out with very strategic actions. I ended with very tactical actions. But some of the items in the middle can almost fit the definition of strategy or tactic. I struggled with determining which bucket to place the item in. Take savings rate. While I wrote the above as your yearly savings rate, which is surely strategic, you could just as easily write it as your daily savings rate. Your daily savings rate is obviously a tactic.
Which leads me to my final point. Ultimately, in any good plan you need both strategy and tactics. They need to work together to deliver your goals. You also need to keep an eye on both. But, you also need to keep an eye on the interplay between them. One day of a poor daily savings rate will not appreciably harm your yearly rate. Hundreds will kill the possibility of having a good yearly savings rate.
How do you balance the need to keep an eye on the strategic, or long run, with the tactical, or short run, in your personal financial planning?