Marginal Gains and your Finances

2016 was an Olympic year and for Team GB an astonishing success. It may be that it will only be the passage of time which provides a true reflection on just how remarkable it was, that a nation of our size achieved so much.

It was a universal success, across so many disciplines and events. But one that stood out, again, just as it did at London and Beijing was the domination of our cyclists in the velodrome.

For a nation that had a previous fleeting success on the track, it is worth noting what an extraordinary leap this has been. Especially when you consider the parallel successes in the Tour de France, albeit we recognise this is as (a) not a national team success and (b) the current controversies around some of this.

It would be churlish, though, to reflect in any other way than something extraordinary has taken place here to transform GB athletes to the top of the world order.

It would also be simplistic to attach this to one thing, or one person, or one moment in time. However there is one person who seems to have been a crucial element in both the Olympic successes and the road successes, as evidenced by winning the Tour de France. That is Sir David Brailsford. He has been such a heavy influence in both arenas, that his methods and approach warrant close inspection.

The thing that Brailsford is most famous for is the idea of marginal gains. Arguably this is not his idea alone, if one reads about the approach of another knight of the realm, Sir Clive Woodward, in the years up to England winning the rugby world cup, a very similar approach was in place.

There is a lot to the concept of marginal gains but at its top level it is about the idea that very small differences across all aspects of what goes into the sport, would make for huge improvements in the outcomes.

This is known as the ‘aggregation of marginal gains’ and is often referred to, for simplicity, as the one percent margin for improvement in ‘everything you do’. Brailsford believed that if you improved every area related to cycling by just one percent, then those small gains would add up to be sizable and positive changes in the outcomes.

With cyclists, this covered the nutrition of riders, their weekly training program, the ergonomics of the bike seat and the weight of the tyres.

But it didn’t stop there. The team searched for one percent improvements in tiny areas that were overlooked by almost everyone else; discovering the pillow that offered the best sleep, testing for the most effective type of massage gel and teaching riders the best way to wash their hands to avoid infection. They searched for one percent improvements everywhere.

In the same way, in the early 2000s Clive Woodward approached the work he did with the England rugby players, looking constantly for tiny improvements, in areas previously ignored by other coaches and teams.

The idea of applying the marginal gains approach is now widespread and is being coached in many walks of life. Can it be aligned to financial planning and to investing? Should it be, and if yes, how can it be?

First off the basic concept is, surely, a large dose of common sense? If you are diligent towards something, so that you look at and examine everything, then you must be more likely to get good results? This seems to be inherently logical. So simply applying an approach of marginal gains, creates more focus and attention to detail.

In the money world, this might mean, as an example, looking deep into the funds you use within your pension plan. Imagine setting a standard so that you only ever used funds that had certain underlying factors, which had proven over time, to increase the chances of getting above average returns? Would an effort at making such an improvement, however marginal, increase your prospects of higher returns? We think the answer is unequivocally ‘yes’.

What about a focus on improving, even marginally, your expenditure efficiency? Imagine spending £1,000 per month and deciding that you wanted to get 1% improvement on the efficiency of your spending in a particular area. That saves you £10 – no big deal on its own, but do it again a few months later and extend this to other areas and you might soon get to £50 or £100. Then you start saving that money and over time, bang, you have very different results.

Or with tax, are you able to reorganise your finances so you pay less tax, even slightly less, again so you can save more for your own future? Or what about the interest you pay on borrowing or the interest you get from your ISA account?

Apply marginal gains to each and all these areas and keep doing so. Each time the difference you make is small but accumulatively you can start to make huge differences to long-term outcomes. This is what we can help you with, and in some cases, do for you.

If you look at the gain to your long-term prosperity by improving the returns on your invested money, even by a small amount each year, this can add up to huge sums in the longer term. Your longer term.

If you look at the power of compounding and how much you can save by paying less or accrue by saving more, the wealth effect is enormous.

We are true believers that the basic principle, discipline and idea of marginal gains is totally transferable to personal finances. It is really a matter of making out extra amounts through skill, attention to detail, through focus and hard graft. Do this regularly enough and with determination, and you can make major shifts in the outcomes.

In this case, fortunately, if this works and you succeed, those outcomes are represented by more wealth for you and your family to enjoy in the future. A prize certainly worth striving for.

If you need to start the New Year with a refresh of your financial planning aims and actions, we would be delighted to work with you to do so.

Alternatively, you can purchase our recently published book “The Wealth Secret” to learn more about getting your finances in order and how to make marginal gains. You can purchase this either via Amazon or by emailing us directly at wealthsecret@penguinwealth.com.