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3 Things a Tesla has in Common with your Investment Policy Statement

Photo of author, Brian Gongaware, CFP®.
Brian Gongaware, CFP®
Director of Advisory Services and Chief Compliance Officer

I’ll begin by sharing that I do not own a Tesla. My dad did spend most of his career with General Motors at their plant in Lordstown, Ohio. While appreciating the physics of the automobile, you certainly don’t want me doing any diagnosis or repairs.

I was recently considering some of the engineering advancements that Tesla has brought to the automobile industry. I’ll share just three of them and draw a connection to a well-drafted Investment Policy Statement.

Vision 360o Camera System

Tesla vehicles have up to nine dedicated cameras and a dozen sensors surrounding the vehicle. These integrated cameras inform the driver of the conditions, opportunities, and threats in three dimensions. They alert the driver to emerging traffic signals, stop signs, vehicles, and other roadway obstacles.

Like the camera system, your committee needs to be the eyes of the organization. Your awareness and observation of the business and its environment enables you to alert the strategy makers (executives and advisors) to external obstacles and threats. Make sure your organizational goals, scorecards, and reporting are in alignment with your investment policy statement and its key metrics.

Regenerative Braking

This advanced engineering technology uses an electric vehicle’s motor to convert kinetic energy into electricity to charge the battery pack while slowing down the car. As the driver pulls back on the accelerator the electric vehicle begins to automatically brake. At the same time the motor reverses direction which starts to put energy back into the battery. This dual benefit of both braking and using its own momentum to recharge the battery dramatically boosts efficiency.

Similarly, a well drafted Investment Policy Statement has target asset allocation ranges. These ranges take into consideration the risk/return tolerance of the fund. As an asset class reaches its upper target range, a rebalancing (or braking) should be triggered. Rebalancing when an asset class has approached its maximum range is a form of braking to accommodate for your risk tolerance. Simultaneously, rebalancing assets that may be at the lower end of their range creates energy to take advantage of emerging opportunities.

Autonomous Driving

While self-driving advances haven’t quite gotten to the anticipated levels by 2021, they are clearly getting closer. Autopilot technology still requires a driver to keep your eye on the road and what might be occurring around you and in front of you. Automatic Lane Change will position your car in the optimal lane to prepare for merges and exits while overtaking slow cars and while providing drivers clear insight to upcoming lane changes. Developments with Autopark, Summon, and Full Self-Driving are on the near-term horizon.

An Investment Policy Statement is intended to take a long-term perspective. It should be frequently reviewed, but not often changed. In most economic and investment periods you will not need to change your strategy (autopilot). And, the types of permitted and nonpermitted investments will rarely change. However, it should be looked at frequently to consider changing conditions, obstacles, and detours that might emerge for the organization. Like a Tesla’s operating system, frequent updates occur, but a change only happens when needed via over-the-air updates. A skilled financial advisor is a key partner in helping you navigate your IPS connecting your resources with your priorities.

So, the next time you see a Tesla on the road, consider the advanced engineering principles at work to ensure a smooth ride to its intended destination. In much the same way, your Investment Policy Statement is the vehicle to transport your organization into the future.

Our team of financial advisors
are skilled at working with nonprofit organizations. Possibly your committee needs a modern look at how you are performing. Perhaps you need a little boost to your performance through power, acceleration, handling, and service.

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