Drafting your Investment Team
It’s almost that time of year again – the time where you begin to trade your Sundays on the lake for some time in front of your TV, eagerly hoping that your favorite football team finally has a successful season. Being a Chiefs fan for as long as I can remember, I’m not expecting good things anytime soon. Luckily though, I am also involved in our work-sponsored fantasy football league, ensuring that my Sundays will almost certainly be unproductive for the next few months.
For those who have not played before, the basic setup is you first draft your team and then each week you compete against one person in your league. Scores are calculated based on the real performance of those players you select, and the person with the highest score earns a win for that week.
In preparation for our draft last night, I realized that the process I took to decide which players I would pick was very similar to that of the investment selection process:
· Do your research. In fantasy football, you look at each player’s track record of success, whether they are working with the same coach, health status and their outlook for the season based on any other factors you know. You should also research your investment options as extensively as you can, by looking at the fund type, past return history, manager tenure, performance outlook, etc.
· The future is uncertain. Because you do not actually know whether your picks will be good or not, you manage your risk as much as possible by making informed decisions. Remember that past performance does not guarantee future results in either situation; you shouldn’t pick a player based completely on last year’s performance and you shouldn’t just select a fund based only on recent returns.
· Monitoring your selections is important. Just as you need to make sure your players are healthy and performing in fantasy football, you need to also periodically evaluate how your investments are doing. We recommend doing this once every quarter.
· You will inevitably make mistakes and there will be some surprises. What seemed like a fool-proof pick early in the season may turn disastrous later (e.g. your star player gets hurt); or maybe a relatively unknown player has a career year and unexpectedly gives one owner a huge boost. Maybe you mistakingly drafted your quarterback too soon, which left you with lower quality picks later. The same is true with picking investments; some things could have been prevented, and others are completely beyond your control.
What looked like a solid investment when you picked it may suddenly take a big downturn, or an unproven investment takes off and becomes your portfolio’s biggest star. Perhaps you became overly aggressive when the markets were doing well, and have now experienced huge losses during the downturn. The important thing is that you learn from previous experiences and make changes that are appropriate for your situation.
And I could go on… but remember that this is an ongoing process. Proper investing requires some attention periodically to make sure you stay on course with your current goals and objectives.
The last connection I want to make is one major diffence between the two. From past experiences, and all the message boards I’ve read leading up to our draft, my conclusion is that people make more informed decisions and are more prepared for fantasy football than they are about investing. Of course, I don’t know this for sure, but people are certainly more enthusiastic about it anyway. There are also more accessible resources for draft-day strategies; you can print off a cheat sheet five minutes before your draft and still be pretty well-prepared to make some decent decisions (cheat sheets are prepared by fantasy football ‘experts’). The same is not true for investment strategies.
Even though you may know that investment selection is probably more important than something like fantasy football (or any hobby for that matter), it’s easy to understand that it’s not terribly exciting. For those that are interested in making better investment choices, many do not know where to turn or how to even begin getting the guidance they need.
A couple of basic sites that I suggest to get started are:
These sites will allow you to research any publicly-traded funds that you have available in your retirement plan. Look for funds with good track records, and be sure that the managers have been with the fund long enough to take credit for the past performance. Also, pay attention to the types of funds you are looking at; you shouldn’t have too much exposure in any one single asset category. There is no set amount of time you should spend researching your options, but the goal is to at least have a gameplan set in place before you start picking your investment options.
For those that are getting stuck at this point, or just don’t have the time necessary for this process, do not give up – the quality of your retirement may depend on it.
If you find yourself looking at the list of funds in your work-sponsored retirement plan, and wondering how to begin building your team of investments, please consider allowing us to assist you. We will put together a strategy that makes sense for you so your investment ‘draft’ goes as successful as possible.
Kevin Jaegers, Senior Investment Advisor
