“People put limitations on their creativity, believing they have to rely on what they know and what they have done.” —Bertrand Piccard
I once had the opportunity to meet Bertrand Piccard, an explorer and a genuine hero. My company contracted with him to speak at our annual general agent’s conference.
“On March 21, 1999, Swiss psychiatrist Bertrand Piccard and English balloon instructor Brian Jones became the first team to fly around the world by balloon, nonstop and without refueling, setting records for distance and duration, and winning a million-dollar purse staked by Anheuser-Busch. The three-week adventure, beginning in Switzerland and ending in Egypt, was an accomplishment in the history of exploration. Using new balloon designs and taking advantage of jet-stream developments, the team ended a 20-year quest and set a new milestone in the 200-year history of ballooning.”1
Steering A Hot Air Balloon
In September, 2022, my wife Di and I traveled with our friends Chuck and Valerie to wine country. We toured California’s Napa and Sonoma Valleys for several days, tasted amazing fruits of the vine in multiple family-owned vineyards, and enjoyed magnificent sights like Muir Woods. We also took a hot air balloon ride!
The four of us, unlike Bertrand Piccard, were not aiming to make history or become famous explorers by circumnavigating the world. We were only looking to spend a peaceful hour or so floating quietly above beautiful vineyards.
On the first morning of our trip we got up before dawn and joined a small group of people piling into vans and heading out for an enjoyable hot air balloon excursion. Hot air balloons are extremely safe. (The most dangerous risk is if a fire develops in the basket due to a leak in the balloon’s gas fuel system, causing the balloon to deflate mid-air and crash to the ground. Not to worry. Hardly ever happens.)
A hot air balloon has no means of propulsion. The balloon basket can carry as few as two or as many as 24 passengers and is made of reinforced steel frames wrapped in woven wicker that is sufficiently light, strong, and durable. The balloon is simply an envelope made of strong, light nylon with a mouth opening at one end. The basket is attached to the bottom of the envelope by extremely strong metal cables. As aircraft, balloons gain lift by heating their large, contained envelope of air to a temperature above the ambient air temperature. Typically, the air inside the envelope will be heated to 198-212 degrees Fahrenheit, much warmer than the outside air.
The burner is attached to a metal frame situated above the basket under the mouth of the envelope. The pilot controls a small valve in order to fire the burner which aims the flame into the mouth of the balloon to heat the air inside. The warmer, less dense air rises, and the result is a lifting of the payload consisting of the basket, fuel tanks and passengers.
Other than ascending or descending, the balloon is stationary in the air. The balloon’s ground speed is exactly equal to wind speed. Airspeed is zero. As a consequence, the balloon provides a smooth ride with no vibration and no wind noise.
To steer a hot air balloon the pilot controls the ascent and descent in order to use the wind direction and wind speed at different heights. Balloon navigation and flight planning depend on four data groupings:
- Pre-flight weather conditions and wind direction.
- Wind direction observed at the take-off point.
- Surface wind direction while in flight.
- Wind speeds and directions at various altitudes.
Hot air balloon teams have multiple locations for taking off and landing and usually all within about ten square miles. Within normal wind speeds and directions, they can generally give passengers an enjoyable ride.
Wind is created by differences in pressure and changes in temperature, which in turn are generated by the sun warming up the surface of the earth. In the period of early morning to midday the wind will be constantly changing.
A hot air balloon is subject to the downward force of gravity which is constant. Against the force of gravity, the pilot can direct the balloon’s movement by increasing the amount of hot air released, and thereby increasing its buoyancy and causing the balloon to rise.
For all the rising, and descending, firing of the burners, using the vents to turn the balloon on its axis, the whole aircraft will travel at altitudes between 1,000 to 3,000 feet and usually move at a mind-blowing rate of three to eight MPH measured in ground speed.
Point: There are a small set of factors that dictate the pilot’s ability to take balloon passengers up from one location and safely down to another:
- Gravity
- Ambient air temperature
- Visibility
- Wind speed at various altitudes
- Wind direction at various altitudes
- Precipitation
Financial Planning Is Like Ballooning while Sitting in Your Chair
Individual financial success is directly related to how well one conducts financial affairs within the context of the underlying economic environment. As financial beings, we climb, descend, skip, go around, and pick our way through a series of decisions and emergencies.
Although our financial lives can proceed predictably and without much attention, a combination of variables like stock market uncertainty, rising interest rates, and a persistent rate of inflation can play havoc with the assumptions underlying our financial objectives.
Do any of these dates give you a twitch?
Monday, October 19, 1987. (The S&P 500 fell by 20.5 percent and the Dow fell by 22.6 percent)
Friday, April 14, 2000. (The Nasdaq index fell by nearly 10 percent)
Monday, March 16, 2020. (The largest single-day point decline—2,997 points—for the Dow)
January to June 2022. “The price of regular motor gasoline rose 49 percent and the price of diesel fuel rose slightly more at 55 percent.”2
May to June 2022. Consumer prices soared 9.1 percent compared with a year earlier.3 (On a monthly basis, prices rose 1.3 percent after prices had just jumped one percent from April to May.)
March 15, 2022, to March 21, 2023. Federal Reserve officials lifted their key benchmark borrowing cost nine times. In just a year’s span, officials hiked interest rates by 4.75 percentage points.4
Point: What looks like a normal day (smooth and quiet) in our financial life can just as easily be the day the bottom falls out.
Up, Down, and Sideways
The typical client will react to sudden financial changes using the same techniques they have always deployed. As Bertrand Piccard said, this places unnecessary restrictions on their creativity.
What tools can an independent financial professional (IFP) use to pilot clients through the more challenging winds of financial change?
Inflation:
- Clients can fight inflation by increasing their income. Retired people can take greater withdrawals. Employed clients can consider interviewing for higher paying positions while unemployment is low.
- Clients might consider turning cash (immediately impacted by inflation) into long-term investments (where growth is possible).
- Clients should postpone major purchases.
- Clients should consider converting credit card debt to fixed-rate loans.
- Clients can improve their resistance to inflation over time by owning cars rather than leasing them.
- Clients should take full advantage of coupons, savings, deals, and discounts.
Rising Interest Rates:
- Clients can best take advantage of rising interest rates by moving money that is currently sitting in savings accounts and checking accounts into more competitive interest rate bearing accounts to earn the most interest possible.
- Clients can consider investing in bonds to add more diversification to their portfolio and help their money accrue better returns when interest rates rise.
- Clients should consider refinancing, or paying off, any variable rate loans before rates go higher.
- Clients should invest in financial service companies. Banks and brokerage firms earn money from interest. When interest rates rise, their margins and profits rise.
Stock Market Volatility:
- Clients can increase their agility and sustainability by strengthening their emergency fund. The investor who panics during market downturns typically did not set aside money for the short term. Clients should have enough money to cover at least three to six months’ worth of expenses in a liquid account in case of an emergency.
- Clients should utilize rebalancing as a way to ensure that their asset allocation still aligns with their risk tolerance and time horizon.
- Clients should begin or strengthen their use of dollar-cost averaging and avoid the temptation to time the market. Dollar-cost averaging assures that the client’s money is invested on the market’s very best days.
Summary
As an independent financial professional you are not trying to send clients on a rocket ship to Mars. You are not calculating planetary orbits in order for your clients to travel 140 million miles into deep space. Their goals do not include making history or going where no woman has gone before. Your role is to help clients adjust to economic conditions, find favorable financial winds, gain greater heights, make measured progress, and to do so smoothly and with minimal distress.
Like a hot air balloon pilot.
Bertrand Piccard:
“Before achieving a dream, you need to make very little steps… People don’t understand that when you want to make a big dream you have a lot of fastidious little things you have to do.”5
Footnotes:
- https://www.encyclopedia.com/science/encyclopedias-almanacs-transcripts-and-maps/circumnavigation-earth-balloon.
- Bureau of Transportation Statistics, https://www.bts.gov/data-spotlight/record-breaking-increases-motor-fuel-prices-2022.
- https://www.pbs.org/newshour/economy/u-s-inflation-at-9-1-percent-a-record-high.
- https://www.bankrate.com/banking/federal-reserve/history-of-federal-funds-rate/.
- “Around the World in 20 Days : The Story of Our History-Making Balloon Flight,” by Bertrand Piccard and Brian Jones, Wiley; 1st edition (October 11, 1999), ISBN-10: 0471378208.
