It’s finally here… Fantasy Football season! A time when many diehard fans allocate themselves to diligent research, constant team and player updates, as well as game day film review. Outsiders may feel it’s a waste of time or a silly game but what they don’t know is fantasy football team ownership is not only an important responsibility, but also a breeding ground for useful and valuable investment knowledge. Information and skills that can, and should, be applied to others areas of your life, including your retirement savings. This year, in my annual fantasy football application to the investment world, I want to help team owners use some of the same strategies they employ on draft day and with weekly line-ups to their investment portfolio and financial future.
Standard Deviation
Consistency is important when it comes to fantasy football. Each week you’re counting on your QB, RBs and other team members for a certain amount of points... and nothing can be more irritating than when one or more under perform. Personally, I can’t stand players, particularly QBs who score 40 points one week, then 12 the next. As a result, I make a consistent QB one of my top draft picks each year. Not everyone would agree with that philosophy, but that’s what I like and what keeps me calm. The same concept can hold true for your portfolio and staying composed on your path toward retirement. What’s nice, is that there is a measure called standard deviation that can help investors create a more consistent route to their investment goals.
I’ll spare you the academic details and complicated equation, and instead, simply categorize it as a measure of the roller coaster ride that a stock, mutual fund or ETF may take you on. Higher standard deviations suggest more volatility and increased variations, while lower numbers offer a more stable base. In fantasy football talk, standard deviation measures the discrepancies between what your player’s projected points are and what he actually puts on the board each week.
While fantasy football sites haven’t adopted the measure just yet, most financial websites make the number easy to find and to compare with other investment options. Therefore, team owners can start applying their fantasy football skills and know-how to their retirement savings by looking up the standard deviations of their current investment holdings and comparing them to other options within their plan. On a comparative basis, the lower the number, the more consistent, and less bumpy the ride is supposed to be.
Hedge
If you have ever had one of your top draft picks go down early in the season, you know the importance of hedging, or having a back-up in place. Fantasy veterans know that one of the most valuable positions to hedge is running back because when a starter goes down, those reps and points will be handed off to the back-up. A situation that can make or break your season.
The same notion can be applied to your portfolio. Often, when I review a portfolio I find that many investors have drafted a pretty good team, but don’t really have a back-up plan if the market turns negative and heads south. Just as you have to be prepared to deal with a player void, so too will be the case with a market gap. Valuable back-up players for a portfolio can include precious metals such as gold and silver as well as fixed income holdings like bonds. Some bonds, like US Treasuries, are referred to as “safe havens” and investors turn to them like the waiver wire when things get ugly.
We could debate for hours whether gold, silver, or bonds were the best or most appropriate hedge, but reality is, there is no single best way to invest or hedge. That’s good news because it means adding a hedge to your portfolio is only a matter of finding out what works for you. Simply start by adding ticker symbols for hedge related investments including GLD, SLV, or SHY to a watch list and monitor them over time to see how they respond to your existing portfolio.
Socially Responsible Investing
Ray Rice, Josh Gordon, Matt Prater, Wes Welker and others are real life examples of socially responsible investing at work in the NFL. Whether you agree with me or not, who you put on your team and what you hold in your portfolio says something about you. I’m not here to judge or condemn any player or company, but some fantasy team owners are digging themselves out of a whole for taking a chance on situations that go against mainstream favor. There is no doubt that in some cases taking such risks can pay-off in a big way, but these players carried very high standard deviations on draft night, and as a result, were worth hedging against. The same can hold true for your portfolio. Whether its child labor, alcohol, tobacco, weapons, gambling, or pornography, what you choose to support with your money can have an impact on your overall returns and season of retirement.
That doesn’t mean you have to convert your entire portfolio to a SRI fund or select only members of the NFL that meet for prayer after the game. You could simply be a vegan who wants to avoid genetically modified foods and fast-food chains; an investor who lost a loved one due to toxins associated with the coal or tobacco industries; or have religious beliefs you wish to translate into your portfolio. Either way, it’s a growing trend to build a retirement savings team that reflects the values and beliefs that are most important to you.
Overall, this article proves that fantasy football is not only a major benefit to you and your family’s future, but also the perfect tool to explain why it’s necessary for you to be in three or four leagues. Good luck!
Check out my two previous fantasy articles
Fantasy Football Teaches Valuable Investment Lessons
Why Retirement Planning Is Like Fantasy Football
