- Diversification is Key
One of the most fundamental concepts in both investing and fantasy football is the importance of diversification. When putting together a team, it is important to fill your roster with players from various teams and conferences. Diversifying your roster will substantially lower your risk of poor performance as a result of unforeseen circumstances. For instance, if you have a running back and two wide receivers from the same team, a simple injury to the QB or a strong defense can severely hinder your performance. However, if your offense consists of players from different teams, you will be less likely to feel the adverse effects of poor performance resulting from one game or player.
Similarly, when investing, it is important to diversify across a number of different asset classes to mitigate your risk exposure. Depending on your particular situation, investing in multiple asset classes such as domestic, international and emerging stocks and bonds of various terms can help reduce the impact of adverse market conditions. Furthermore, since certain asset classes provide returns that are less correlated to one another, investing in a broad range of classes will increase chances of generating better returns during various market conditions. An easy way to reap the benefits of diversification is investing in mutual funds. Mutual funds provide investors instant diversification by holding a basket of securities that span across various countries and styles.
- Keep Emotions Out of your Decisions
Experienced fantasy football players are all too familiar with the emotional complications of drafting players from rival teams and having to cheer for them throughout the season. As a result, many fantasy football players fall into the trap of drafting too many players from their favorite team. While it is difficult to draft and support players from league rivals, filling your roster with players from your favorite team increases your risk of poor performance as a result of one bad game or season…especially if you’re a Browns fan.
This is very similar to investors who continually accumulate company stock without analyzing its relationship to their total net worth. Ownership in one’s company definitely creates a sense of pride and fulfillment for employees, but remaining rational about overall investment decisions may prove more pertinent to long-term success. While an employee stock purchase plan undoubtedly has its advantages when utilized properly, it is important to keep in mind the negative implications of concentrating too much wealth in one position.
- Tune Out the Noise
The constant coverage provided by local and national sports casters makes it virtually impossible to avoid the fantasy football topics and opinions that are transmitted on a daily basis. Each football expert seemingly has a different opinion on every subject that they argue is undeniably true. Much to the common fantasy football player’s dismay, they must decipher the endless amount of information and determine what they believe will best suit them.
The same can be said for investors as constant market coverage makes it easy to feel overwhelmed about the intricacies that surround their investments. More often than not, market news is over-exaggerated in an attempt to pull at the emotions of investors and grab their attention. A large majority of market news focuses on the short term, which will ultimately will have little impact on the long-term performance of the typical investor. Ignoring the constant barrage of irrelevant market information is vital to ensure you remain on track with your investment goals.
So, the next time you are picking your fantasy football lineup, remember to implement a few basic investing principles and you could be well on your way to winning a championship!