You may not realize how your personal goal setting relates to a college basketball tournament, but you may notice some interesting parallels in the weeks ahead. If you are like most Arkansas Financial Group, Inc. clients, you have set some significant goals over your lifetime. Some you may have already achieved, and others may be still in process. However, if you happen to watch the tournament this weekend, see if you can make the following connections:

The Concept of Compound Interest

As a refresher, Compound Interest is a mathematical concept. It simply means that you earn interest on your investment, and then your interest earns interest. Overtime, this causes your investment to grow exponentially. You may have always connected this concept to money and investments, but you can apply it to any good habit or pursuit of a goal, and the same concept applies. 

Imagine a basketball player who is fouled and can go to the free-throw line for a second attempt to score.  Now the minutes, hours, and years of practicing in the neighborhood, on various teams, or at basketball camps pay compounded dividends. In fact, the more successful and skilled a player is, the more likely he or she will reap the benefit of this opportunity. The more members of that team who have invested their time wisely will yield even more dividends (points).

Unfortunately, the opposite is also true. A poor investment of time or attention to practicing free throws is the equivalent of a bad investment. Instead of sinking the shot at each opportunity, let’s assume the player misses often, and then it happens repeatedly for the same team. This reflects the idea that poor investments inevitably yield bad results, and so the magic of compounding doesn’t happen.

With non-financial goals, the concept of compound interest cannot be easily measured. However, it is an important concept to understand. When it is taken seriously in goal setting (and not just for your retirement funds), it plays an important role, and it reminds me of a concept called the Butterly Effect.

The Butterfly Effect

I first heard of the butterfly effect when I attended a lecture on chaos theory. You may have heard of it as well. Here’s the idea:  A small butterfly fluttering its wings on one side of the world can trigger weather events on the other side. You may think this sounds extreme, as do I, but it goes back to that compound interest concept. It may take more than one butterfly, but in summary, actions have consequences, and small actions consistently applied can lead to astonishing results. While the flutter of a butterfly is a random event, imagine if a simple action was consistently applied? This leads to the third concept you can observe this weekend.

The Power of Being Intentional

Being Intentional is another goal setting concept. While it goes by various names, the idea is that the more you can zero in on a very specific outcome, the higher your odds of success. Now, I’m pretty sure all 68 teams that made it to the Big Dance aspire to success on some level (perhaps if only to just make it through the first round.)  However, if you drill down through the past winners, you will typically find that the planning started long before the first tip off. In fact, collegiate sports programs spend years in development before the right combination of coaches, players, and other factors come together for a winning season. 

As with retirement planning, which is a goal you may identify with, the planning and implementation starts early, and with a clear picture of the desired outcome. 

Are there cases of where a team just got lucky, and had the right players, coaching, seeding, etc., and had an optimal outcome with very little effort? I’m sure it has happened. It also happens in life, where an individual who obviously made no effort to save for retirement got bailed out. They had a rich relative die and leave him or her a fortune, thus sparing the individual the years of discipline and careful preparation. However, these cases are not typical. 

The more common theme is hearing the stories of difficulty, setbacks, heartbreak, and then finally…success. The media will say it was a Cinderella story, making it sound as if success magically happened. But as with life, most Cinderella stories are a combination of the theories I outlined above:  The concept of compounding, the butterfly effect, and the power of being intentional. It will be fun to watch what this year’s tournament brings. If you are a fan of March Madness, I hope you enjoy the games and the inspiring stories that emerge. May your favorite team win!

Kristina Bolhouse, CPA/PFS, CFP®

Vice President/Shareholder

© 2024 Kristina Bolhouse and The Arkansas Financial Group, Inc., All rights reserved.

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