World Cup Soccer and Investing

The World Cup Soccer championship captures the interest of fans around the world every four years. One of our investment managers found parallels between the preparation, strategy, and implementation of high level soccer play and investing your portfolio.

Over the past few weeks, millions of Americans were introduced (or reintroduced) to the World Cup. If you are one of them, you probably now know terms such as “pitch” and “sides”, and you may have become familiar with team nicknames, such as Desert Foxes (Algeria) and El Tri (Mexico).

As I watched the best teams in the world play, it became apparent to me that the World Cup is similar to investing. Listed below are just a few ways that investing and the World Cup go hand in hand, or “foot in foot”.

What is your strategy?

In the World Cup, each team understands their strengths and weaknesses. Should you play a defensive strategy that yields few good scoring opportunities for the opponents, but keeps you in the game? Or, should you play an aggressive strategy knowing that it might open you up for some goals against? Maybe a balanced attack is best.

With investing, once you understand your goals, you can develop an investment strategy. Do you need long-term growth which suggests an aggressive strategy? This might result in short-term volatility, but gives you a better chance for stronger long-term returns. Do you need safety and stability, i.e., not looking for high returns but, more importantly, not wanting to lose anything? This would suggest a defensive approach. Perhaps something in between is appropriate for your portfolio.

Managers are Important

In soccer, players are very important, but a manager can be the difference between winning and losing. Last year, Mexico was on the verge of not even qualifying for the World Cup. A management change helped Mexico to not only qualify, but also put in a strong showing.

When investing in mutual funds, the managers are important. They make the decisions on what to buy and sell. When a fund manager leaves a fund, what are the credentials of his/her replacement? Are you confident the new manager can be effective or do you need to look at a substitute? Speaking of substitutes…

Have your Substitutions Ready

A good soccer team manager will know what substitutions make the most sense depending on how the game develops. With investing, you may need to make changes in your investment portfolio based on how the markets progress or how the individual investments perform. If interest rates start moving higher again, are your current bonds appropriate or will you need to make changes? If so, what changes? Over the past several years, your international stocks have likely underperformed your domestic stocks. Is now a good time to sell some domestic investments in place of cheaper, though perhaps riskier, international ones? It is important to think about these issues ahead of time, so that you can be ready to make your “substitutions” when the time comes.

Be Prepared for Extra Time

Many of the games in the knockout round have gone to extra time in order to break a tie. Teams must prepare for this contingency. If they use all of their energy and substitute players during regulation play, it becomes more difficult to compete in an additional 30 minutes of extra time.

The same applies to the longevity of your portfolio. Make sure you understand how much money you need to fund your lifestyle in retirement and how many years you want to plan for. By preparing appropriately, you can eliminate the fear of running out of money.

Watch your Portfolio - More than Every Four Years

If you want to get more out of watching the World Cup, you might want to pay attention more than once every four years. Keep an eye on the players, the international competitions, and maybe even the exhibition matches.

The same applies to your portfolio. You may not need to monitor your investments every day, but you should keep an eye on them more often than every few years. If you don’t monitor on a regular basis, you may hold onto something that should have been sold or miss out on a different investment that is more suitable than a current holding.

Summary

Keeping all of these soccer lessons in mind when managing your portfolio can you help you navigate the coming years and keep you on target with your gooooooaaaaaaals!