Learning the art of Zidanomics

THE legendary French footballer Zinedine Zidane is considered to be one of the greatest players to have graced the football pitch.

As an attacking midfielder, he combined the best qualities of a striker with his superb ball skills to coordinate the team’s assault on the opponents’ goalmouth. In addition, Zidane was invaluable in pulling together the defence.

In short, Zidane is a prime example of how an outstanding midfielder holds the team together. Interestingly, these are the qualities we need to adopt, when we set out to optimise our money.

Money optimisation requires maintaining a fine balance in a select number of areas that have financial implications for us. As we discussed in last month’s column, investing is only one of eight core areas of personal financial management that require our considered and informed attention.

While investment planning and management is like the striker gunning for goals, it is equally crucial to address other risk factors that can greatly impact our financial success.

In football terms, this means making sure that we not only have superb offensive skills and strategies, but that our midfield is hardworking and efficient, and we always have a solid defence.

Merely growing our wealth without paying attention to these other factors is like playing football with only the strikers on the pitch.

Using the football analogy, it is common to see three levels of money optimisation among investors.

Level 1

Level one is home to the speculator. Through speculation this person endeavours to grow their wealth (even though he may think that he is investing). Here the focus is often only on the return on investment.

A person who adopts this strategy tends to make decisions based only on the promised return, without considering other factors.

On level one, the higher the promised return, the better. The investor tends not to think about the risks. In this person’s mind, there are no risks. Normally, inexperienced investors will fall into this category.

But don’t think this level is reserved for the young and naïve. This is a fool’s paradise where ambition and the opportunity to ‘make it big’ blind sides and often relegate common sense to the bench.

Here the focus is on the offence, with no thought given to the defence. Of course it is more exciting to go on the attack. The players get to showcase their skills, evade the opposing team and take a crack at scoring a goal. Nothing sets the pulse racing like a scramble at the goalmouth.

When applying this strategy, sometimes investors will make a gain and sometimes they will lose. The money growth pattern is very unpredictable and they never learn why.

Level 2

Next the focus shifts to investing. Here, the strategy is to manage investment returns and risks concurrently. In addition to investment returns, we should consider whether the investment will lose money, whether our capital is secure, and whether the investment can deliver the promised return. In football terms, this is like a team that has a strong offence and some strength in defence.

Usually, people who are a bit older and with more investment experience will operate at this level. They may have experienced losses or even have had their capital wiped out before. A person who adopts this strategy will see his or her money grow to a certain extent. However, this does not mean that the money growth is optimised. Playing at this level, the investor may be too worried about potential risks and become too conservative.

It is a common occurrence for investors to address each individual investment with a silo mentality.

With this approach, investors fail to consider how it may impact the rest of their investment portfolio. As a result, they will overlook the risks that lie beyond the investment. So, when they make an investment decision at this level, there is somehow some anxiety and a feeling of insecurity in them.

Level 3

At the highest level, the focus is on money optimisation. The strategy involves managing the investment return, and the risks arising from the eight areas of money optimisation such as investing, estate planning, debt & loan management, tax planning, risk management & insurance, planning, education planning, retirement and asset protection. At this level, we take into consideration all our assets and financial resources when investing. In addition, we also consider our life and financial goals.

In this way, we will be clear about our optimal target investment return, asset allocation, optimal saving rate, cashflow and other factors. As a result, we are able to minimise all unnecessary risks and grow our money optimally at all times. When we make an investment decision, we feel comfortable and trust that it is a good decision.

Taking an integrated approach to all eight areas of money optimisation, we will arrive at balanced and optimal investing decisions each time. We know that we will not over leverage to cause cash flow challenges nor under invest our money and fall prey to the risk of inflation. We also know not to put all our eggs into one basket by investing too much money into any one asset class, be it properties or shares.

Using the football analogy, the offence and defence work as a team coordinated by a strong midfielder like Zidane. As another football star, Zlatan Ibrahimovic, puts it: “When Zidane steps onto a pitch, the other 10 players suddenly get better”.

In some ways, a strong midfielder is like a holistic financial plan that coordinates our total financial needs and resources. It will help us grow our money with minimum wastage and result in steady growth.

When a talent like Zidane plays his part, he earns titles like the Best European Footballer in the last 50 years. If we grow our money like Zidane plays football, financial success is guaranteed.

> Yap Ming Hui (yap@yapminghui.com) is a bestselling author, TV personality, columnist and coach on money optimisation. He heads Whitman Independent Advisors, a licensed independent financial advisory firm which has helped people to optimise their wealth and achieve financial freedom since 2000. - The Star