Just as in football, offensive and defensive balance and a solid game plan are the keys to investment victory. Football is a game that requires both offensive and defensive strategy, a commitment to a game plan, and filling each position on the field with players that fit the coach’s scheme. A thorough investment strategy is your game plan.
Constructing an investment portfolio mirrors football in that offensive and defensive strategies need to be considered, committing to a game plan based on long-term market trends is essential, and choosing a diversified menu of investments that work well together is paramount to overall success.
While maintaining focus on your longer-term game plan, the opponent would certainly catch on if the same plays were run over and over, so a portfolio needs to be fluid and flexible, capable of reacting to market opportunities.
Offensive and Defensive Investment Strategy
A football team can be built with a powerful offense or a formidable defense, but typically a balanced team with a tactical offense and battle-tested defense will win more games. Think of stocks and bonds as the offense and defense in a portfolio. We want to score capital appreciation in stocks while reducing risk and turnovers with bonds.
The goal is to properly allocate and tactically adjust the weight-ings between your offensive and defensive strategies to diversify market risk and smooth returns.
Game Planning For Your Financial Investment
Creating a game plan is often overlooked and underappreciated. Coaches spend countless hours studying their opponent’s tendencies and attempting to find a weakness that their team can capitalize on. Bill Belichick of the New England Patriots may be the best game planner in the National Football League. He will stick to a game plan, as painful as it may be, until it eventually leads to success. Portfolio construction requires the same dedicated approach to studying market tendencies and identifying opportunities to create an investment game plan.
At Trust Point, we take the emotion out of investing and construct portfolios based on our outlook for the medium or long-term, not just for a couple of quarters where short-term headlines can cause markets to deviate from longer-term trends. We stick to our plan, even when it can be out of favor because longer-term trends typically win out and have a bigger impact on portfolio returns. Our game planning process involves extensive research utilizing multiple independent research providers, countless discussions and stress testing our investment ideas. The preparation ensures our portfolios match underlying fundamentals and longer-term trends.
Situational Investment Strategies
Throughout the course of a football game, teams are faced with various situations. At one moment you might be stacking the line of scrimmage with all of your defenders, trying to protect your end zone. The next moment you might be spreading the field with five wide receivers.
The same approach applies to the tactical asset allocation decisions we make within portfolios. When we need that goal-line stand, we will position the portfolio in a defensive manner to protect your assets from major market declines. When we see opportunities in the market, we will position portfolios in a way to benefit from them. It’s important to not get too aggressive, though. Trying for a Hail Mary in your investment portfolio will most likely result in failure (unless you are Aaron Rodgers).
A Diversified Investment Is A Strategic Investment
A football team is comprised of many different types of players; some are small and fast, while others are big and strong. Any championship team needs good players at every position. An investment portfolio is no different.
Every play starts at the line of scrimmage and the players on the line are often considered to be the core of the team. These are strong, stable and dependable players who participate in every play. In an investment portfolio, these are the “core” positions. At Trust Point, we have identified a few core asset classes where low-cost passive strategies provide exposure to the stable and dependable areas of the market. The remaining roster is filled with “skill” players that carry specific attributes.
Legendary football coach Vince Lombardi once said, “Individual commitment to a team effort, that is what makes a team work.” For an investment process to be successful, it takes a commitment to each component.
Working with a Dedicated Team
Our team is committed to providing you with the information you need to feel comfortable with your financial decisions. We will communicate the details, so you know where you stand and what needs to be done. Contact us to see how our process can help with your investing needs.