When Fantasy Football and Portfolio Construction Collide: Diversification Lessons from Fantasy Football

There is an early crispness in the air here in Pennsylvania, signaling the start of football season. In the Vandenburg household, Sundays revolve around three things: Church, Family, and Football.  

One activity that brings our family and friends closer together is participating in fantasy football. As I sit here scouring articles, analyzing player statistics, and reviewing analyst predictions, I can’t help but see parallels between constructing a fantasy football team and building an investment portfolio. Here are some ways these two tasks interact: 

Diversifying Players & Holdings 

One of the most crucial aspects of constructing both a fantasy football roster and an investment portfolio is ensuring ample diversification. The goal of diversification is to maximize returns while minimizing risk. 

Since I’ve been going to Eagles games since I was 10, I will use a local example. While having Jalen Hurts, AJ Brown, and Saquon Barkley on your fantasy team might seem tempting, it can be risky.  If the Eagles face a strong defensive team and score only a few points, or if they have a slump (and let us not discuss how the 2023 season ended), having too many key players from the same team can hurt your fantasy performance. These potential setbacks can add up over the season.  

Similarly, in investing, concentrating on one sector or a few stocks might offer high returns occasionally, but it is not a reliable long-term strategy.  Over the last decade, only 17% of individual publicly traded companies have outperformed the broader market (https://corporate.vanguard.com/content/dam/corp/research/pdf/considerations_for_index_fund_investing.pdf  ). What has worked overtime has been to diversify yourself over a multitude of asset classes, such as stocks and bonds, and adjust periodically as you progress throughout life, and its changes. You can read more about the benefits of diversification here.  

At Prepared Retirement Institute (PRI), we focus on high quality income-oriented investments to protect your assets, complimented by sound growth focused investments to ensure a balanced portfolio that meets your goals. To learn more about our investment philosophy, click here.  

Time

You may be curious what, “time,” has to do with portfolio and fantasy football construction. I recall a friend in one of my fantasy leagues last year (we will keep her name anonymous to avoid embarrassment). After our draft she was thrilled with her team. However, I noticed that about five of her starters had their bye week in week 7. I pointed this out to her in a friendly way, and she had no immediate solution.  While her team performed well initially, she struggled during her week 7 matchup and missed our league playoffs by a narrow margin (I will let you guess how many games she missed this by). 

This situation parallels the concept of staggering income within a portfolio. Many investors currently place all their fixed-income holdings into short-term treasuries or money markets because they currently offer over 5% annual returns, which seem “safe.” However, these high rates may not last. 

 At (PRI) we prefer to ladder our income holdings across dividend-paying stocks, high-quality corporate bond funds and individual bonds too. This allows us to spread income payments out over time and minimize the impacts of interest rate changes.  

Past Performance & Outside Variables 

Lastly, relying solely on past performance when making projections can be risky. Many players have standout statistical years only to underperform the following season. The same applies to investments and market segments. Do not assume that just because last year was successful, the same will be true for the current year.   

We must also consider the effects of outside factors. For portfolio construction, this would include considering the latest tax policies and inflation updates while reviewing these aspects periodically. When it comes to game planning for football, this would correlate to looking at field conditions and the latest injury reports.  

By applying these lessons from fantasy football to your investment strategy, you can better manage risk, optimize returns, and make more informed decisions. 

I am a big Carl Richards fan. He has a simple diagram that I attached below that I believe puts everything into perspective. The same can be said when selecting players for your fantasy team.