It’s Sunday morning and my kids are checking player reports to assess their fantasy football lineup. They chattered about winning and losing the previous week and rumours of a reserve player who looked ripe to break through.
During NFL games, they check player stats on their phones to determine team performance.
It was fun to watch them test their player-selection skills on NFL Sunday – and throughout the afternoon, they experienced all sorts of emotions. In many ways, fantasy football’s highs and lows remind me of how many people are close to investing.
The global fantasy sports market has exploded in recent years. One reason is that the young population is growing and has ready access to digital infrastructure, affordable smartphones and fantasy sports apps.
Could a similar trend prompt young investors to speculate in financial markets?
Today, stock trading programs coexist alongside fantasy sports apps in our smartphones, providing easy access to stock or cryptocurrency trades—sometimes even faster than picking up new tensions or placing bets on a Sunday morning. But for your portfolio, fantasy can only go so far, and the stakes can be higher.
This can be a good time to think about the difference between speculation and long-term investing — and recognize that your investment decisions have real and lasting consequences. Building a stable investment base is key to helping reduce adverse outcomes and position capital markets for potential returns.
4 steps to financial prudence
Here are four ways to help ensure you make prudent financial decisions:
- Understand the impact of your decision: Using a convenient digital platform to pick stocks or time the market can easily get bogged down. But without a solid investment philosophy, everyone is at greater risk of being caught on a speculative emotional roller coaster. A strategic long-term investment approach guided by proven market principles and decades of research into asset behavior and portfolio design, convenience and instant gratification are not as effective.
- Long term consideration: The NFL fantasy football season lasts only a few months. This is different from the idea of accumulating and managing wealth for life. Your investment decisions should be based on a time horizon that matches your goals. Speculating on individual stocks or industries encourages a short-term mindset that is easily shaken by unpleasant surprises. Investing involves a long-term view based on a historical understanding of the market.
- Know your investment: Digital platforms can offer a growing array of alternative investments, from cryptocurrencies to single-stock exchange-traded funds. In pursuit of good results, it is critical to understand the characteristics of stocks, bonds, real estate and other asset groups and their specific role in your portfolio. This means evaluating an investment’s expected return, risk profile and potential cost.
- Find a qualified financial advisor: One way to create and manage an investment plan is to hire a professional. Working with a financial advisor can help outline clear financial goals and make investments that will help achieve those goals, rather than simply gamble on the market. Advisors can also help you focus on controllable factors such as diversification, portfolio rebalancing and tax management. Daily market movements are beyond anyone’s control, but you can choose how to react in tough markets.
Investing is not a game and should not be considered a game. So, sit back and enjoy the rest of the NFL season. If that fantasy league made this all the more fun, all the better.
Just learn what you can afford to lose in life – and what you can’t. Financial security is built over years or even decades. Not on any given Sunday.
With a solid investment plan and the discipline to match, you can pursue long-term success without the anxiety and emotions that come with speculation.
– Dave Butler, Co-CEO, Dimensional Fund Advisors