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While you may not think there’s a link between bike racing and investing, understanding the success of GB cycling could help you.
Between 1908 and 2003, British cyclists had only won a single gold medal at the Olympics, and no cyclist from the UK had ever won the Tour de France in its 110 year history.
That all changed after the team hired a new coach, Sir David Brailsford. He championed an approach towards cycling based on marginal gains, breaking down everything that could affect a cyclist’s performance then aiming to improve that factor by just 1%.
His strategy worked. In 2004, our team won two Olympic gold medals, and in the Beijing Olympics of 2008, we won 60% of the gold medals available. Then, Team GB set nine Olympic records and seven world records at the 2012 London Olympics.
What’s more, Olympic cyclist Chris Froome went on to win the Tour de France in 2013, 2015, 2016, and 2017.
So, what does all this have to do with investing?
Just like the thrill of a cycling race, investing is sometimes nerve-wracking and can often feel like a risky endeavour. This is especially the case when markets are somewhat volatile – like the British Cycling team, you might sometimes feel as if you’re on a “losing streak”.
Fortunately, a long-term investing strategy could help you carry on in the face of setbacks such as market uncertainty. And, just as Brailsford did with the British Cycling team, learning how to make the most of marginal gains wherever possible may make a huge difference.
Continue reading to discover what investors could learn from Sir David Brailsford’s marginal gains strategy.
Even marginal investment gains can significantly alter the overall performance of your portfolio
Part of Sir David Brailsford’s “aggregation of marginal gains” strategy involved reviewing any areas where a seemingly insignificant improvement could be made. This involved redesigning bike seats, switching to indoor racing suits, and even testing different massage gels.
While these 1% gains may have initially seemed meagre, they collectively produced astonishing results over long-distance races and took British Cycling to record-breaking heights.
So, we now know that marginal gains can make an enormous difference to the performance of a sports team. But what about how they could affect your investments?
As you read above, even a small improvement in your returns can accumulate into large amounts over the years.
In fact, Hargreaves Lansdown states that even if your average annual returns climbed from 5% to 5.5% – only a 0.5% difference – over 10 years, this could boost your portfolio by nearly 8%. This equates to an extra £800 on a £10,000 investment.
If you wish to employ the power of marginal gains in your own investing strategy, there are several options you could explore with the help of a professional.
Here are two to explore in further detail.
1.Diversification
When it comes to investing, diversification is your only free lunch!
Spreading your investments over different sectors and geographical areas could help to limit your overall exposure to risk.
If you have an adequately diversified portfolio, and a particular sector experiences a period of downturn, your gains in other sectors could offset your losses. This may increase your potential returns, and even if they only rise marginally, could still produce positive results in the long run.
2. Pound cost averaging
Similarly, you could use a strategy called “pound cost averaging” to capitalise on market volatility and make the most of marginal gains.
Pound cost averaging involves spreading the purchasing of assets out over a set time period, rather than buying assets with one large lump sum at a fixed unit price.
If you divide the money you intend to invest over several months or years, the price of the units you buy will fluctuate over that time. In effect, you’ll buy more units when prices are low and fewer when prices are high, giving you an average of what the market returns over time.
Just remember: investing should ideally be a long-term journey. Both methods noted above are most effective when applied to a strategy that spans many years, and should ideally be adopted with the help of a professional.
A financial planner can guide your investment decisions and help you cross the finishing line
Much like Sir David Brailsford’s unique methods guided British Cycling to new heights, a financial planner could help you manage your investments effectively and benefit from greater potential gains.
While you may not find yourself participating in the Tour de France any time soon, we can assist you with your long-distance wealth journey.
Email info@athertonyork.co.uk or call us on 0208 882 2979 for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.