4 practical lessons Formula 1 can teach you about investing
From 7 – 9 July, the Formula 1 Grand Prix returns to Silverstone. It’s sure to be an event filled with excitement as 20 of the most skilled drivers in the world battle it out for a coveted spot on the podium at the home of British motor racing.
But Formula 1 is about more than the next race weekend – it’s also about precision, continual improvement, and managing the numerous risks that the cars and drivers face each time they race. In fact, it has a lot in common with investing. So, what could you learn from the sport that could help you to come closer to hitting your financial goals?
1. Never underestimate the power of a pitstop
The teams in Formula 1 practise relentlessly to perfect the art of the pitstop. The very best pit crews will have changed the car’s tyres and released the driver in under two or three seconds.
As well as being required by Formula 1 guidelines, these pitstops are to ensure that the car’s tyres don’t wear out before the end of the race, as this could put the driver and others in danger. Sticking with a suboptimal tyre for the race conditions could also jeopardise the driver’s chances of winning. So, swapping tyres at the crucial moment could make all the difference.
As an investor, pitstops – or annual reviews – are equally crucial to your success. Over time, there are lots of factors that could change, including:
The balance of your portfolio, depending on the returns you have generated
Your overall attitude to risk
Your personal circumstances
Your long-term goals.
Each of these factors will affect whether your investments offer you the greatest possible chance of hitting your financial goals. If they have changed, it is prudent to address the situation sooner rather than later to protect your wealth and ensure you are able to do everything you would like to in later life.
2. Managing risk may not be glamorous but it saves lives
In 2018, the Fédération Internationale de l'Automobile (FIA) – the governing body of Formula 1 racing – introduced the “halo”. The halo is a protective titanium structure that was added to the previously open cockpit of the cars. It curves around the driver’s head and is designed to protect them from injury and even death from debris on the track or in the event of a collision.
The addition has been a contentious one. Many have shared concerns about the aesthetics of the structure, the potential reduction in visibility for the drivers, and its effectiveness in preventing injury or death. Despite this, the halo has demonstrated a 17% effectiveness in reducing driver injury and several drivers have confirmed that it doesn’t reduce their visibility on track.
The halo has saved several lives since its introduction, winning over some of its earlier critics. One of the most notable halo success stories occurred in the opening lap of the 2020 Bahrain Grand Prix when Romain Grosjean’s car smashed through the barriers. Thankfully the driver escaped and he has attributed this to the addition of the halo to his car.
In investing, managing risk is also crucial to the success of your portfolio, although it may not be the most glamourous task. If you have some big financial goals, it might be tempting to opt for a high-risk portfolio in the hope that returns may be higher. But it’s important to be realistic about your own personal attitude to risk as well as your capacity for loss. Both of these factors will inform how much risk it’s appropriate to take on your portfolio.
When you work with a financial planner, they can help you to balance your portfolio to minimise risk while also ensuring it offers the greatest potential to generate the returns needed to help you achieve your goals.
3. The vehicle is at least as important as the driver
There’s a lot of debate over just how much influence the driver, the team, or the car itself has over the end result of a race. But most seem to agree that, regardless of the exact numbers involved, the car is likely to be the most important factor in whether a team wins the Grand Prix or not.
The greatest driver in the world would struggle to deliver a good result in a substandard car. And it’s exactly the same for your portfolio.
As the “driver” of your finances, no matter how consistently you invest or how careful you are with your money, if your portfolio isn’t balanced correctly, you’re much less likely to achieve your goals. This means accounting for the fees, risks, and time frame required, all of which can affect your ability to achieve your financial goals.
4. A race win is a team effort
While the drivers are very much the face of their team, each one is supported by race engineers, mechanics, strategists, and many more specialists back at the factory to help them reach the podium. Without them, it simply wouldn’t be possible for the driver to do their job and achieve a win for the team.
This provides a helpful analogy for the importance of seeking professional advice when investing your money. When it comes to making smart investment decisions and building your overall financial resilience, there’s no substitute for working together with a planner who you trust.
A planner can offer helpful advice about how to invest your wealth with an appropriate level of risk for your circumstances. What’s more, their advice could help you to achieve your goals sooner than if you tried to do everything yourself. According to research by Standard Life, individuals who have taken professional financial advice about their retirement expect to be able to retire three years earlier than those who haven’t.
Get in touch
If you’re looking for a reliable financial planner in Towcester to help you achieve your financial goals, we can help. Email theteam@fortitudefp.co.uk or call us on 01327 354321.
Please note
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.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.