At first, it sounds as if living with Dave Brailsford could be nerve-wracking.
Brailsford is among the world's best coaches. In 2003, he became performance director of British Cycling, the governing body that chooses and trains the cycling race teams for Great Britain. A year later, the Brits won two gold medals at the Athens Olympics — their best showing since 1908. Then in 2008 and again in 2012, they won eight gold medals. Under Brailsford's direction, British cyclists won the Tour de France in 2012 and 2013.
How was he able to transform British cycling? Through something he calls "the aggregation of marginal gains." As he explained to the BBC:
"The whole principle came from the idea that if you broke down everything you could think of that goes into riding a bike, and then improved it by 1%, you will get a significant increase when you put them all together. There's fitness and conditioning, of course, but there are other things that might seem on the periphery, like sleeping in the right position, having the same pillow when you are away and training in different places. Do you really know how to clean your hands? Without leaving the bits between your fingers? If you do things like that properly, you will get ill a little bit less. They're tiny things, but if you clump them together, it makes a big difference."
Yes, folks, he taught his cyclists how to wash their hands. (I can only imagine what he'd say about the way I load the dishwasher or take a shower.)
3 small changes that'll pay off big time
Brailsford's tactics may seem extreme, but it's hard to argue with success. What he's really doing is using science and statistics to identify weaknesses and the best solutions — from the most effective massage gel to the cyclists' psychology to the layout of the team bus. That relentless testing and tracking has paid off.
You probably don't relish the idea of applying Brailsford's level of detail obsession to your own life (such as determining which pillow will enhance your typing the next day at work). But you don't have to. Like cycling, financial planning is part human and part machine — with plenty of smaller moving parts that can be fine-tuned for better performance.
You don't need to overhaul each key component; simply making a few small improvements can snowball into significant gains over time. Here are three ways to apply "the aggregation of marginal gains" to your life:
1. Increase your 401(k) or other work retirement plan contribution by 1%
According to Vanguard – one of the leading providers of employer-sponsored retirement plans – the median savings rate of employees in their plans was 6% in 2013. Throw in the fact that the median annual income of these participants was $75,000, and we can estimate that Mr. or Ms. Median contributed $4,500 to their 401(k)s last year. Assuming they were starting from scratch, receive a 3% annual raise, and earn an average 8% annual return on their investments, in 20 years they'd have $276,734 their 401(k).
And what if they upped their savings rate from 6% to 7%? That simple 1% bump adds an extra $46,000 to their 401(k) balance over time, giving them $322,857.
2. Enhance your skills so you can earn a 1% bigger raise
A higher income means more than a bigger paycheck; your 401(k) will get a raise, too, even if you don’t change your savings rate, because you’ll be deferring a portion of a bigger pie.
Let's continue with the example we started above. If Mr. or Ms. Median earn 4% annual raises instead of 3%, and saved 7% of that bigger paycheck, they would have $348,845 after 20 years.
3. Replace mediocre mutual funds with lower-cost alternatives (which are statistically more likely to have better returns, because costs are the most reliable indicator of future performance)
In 2010, fund research company Morningstar studied whether their coveted star ratings or expense ratios are successful predictors of a fund’s future performance. Among the conclusions: “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds,” wrote Russel Kinnel, Morningstar’s director of manager research. For example, the U.S. stocks funds in the quintile with the lowest expenses in 2005 beat the quintile of funds with the highest expenses by 1.33% annually over the subsequent five years.
The lesson here is simple: If the funds you own are underperforming their benchmarks – because they’re pricey or just stinky – make a change. Every dollar you're not paying in fees (every single year, by the way) is a dollar that's working for you and compounding over time.
Sweat the right stuff
Of course, your complete financial picture includes much more than you might immediately consider. (For example, you could increase the amount you exercise 1% each week for 60 days to improve your health and longevity, which also lowers your medical expenses. Or lower your household's electricity, water, and gas consumption 1% each month each for the next year to lower your energy bills.) But you don't have to dive into all the components at once.
Just pick one -- right now -- make a small adjustment to improve your returns, and hold on as your tweaks come together and over time make a large, collective positive financial impact.
