We’ve talked a lot down the years about the benefits of diversification … but not in comparison with Manchester City, Liverpool, Chelsea, Villa or whoever is your favourite team.
Yet investments and football do correlate – you need some good old North of England grit married to Brazilian flair.
Think about it.
Hargreaves Lansdown notes: “You can’t pick the star players, but you can buy the team. Spreading your investments smartly through diversification gives you options – and it’s completely within your control.
“In a sports team, you wouldn’t pick players who are good at the same thing. It’s great to have fantastic goal-scorers, but if you forget to include a good goalkeeper or strong defenders your shooters’ work might as well be forgotten.
“No one player’s more important than another. By everyone doing what they are best at, and working with others who do what they’re best at, you have the best chance of winning the game.
“Building a team of investments, a diversified portfolio, is no different. Diversification means spreading your money between different types of investment. Whether it’s types of companies, types of asset – like shares, bonds, funds and property – different parts of the world, or investment styles, there are lots of ways you can do it.”
Hargreaves Landsdown goes on: “The first thing you’re taught when playing sport: don’t chase the ball, stick to your position.
“Go to any under 10s match and you’ll see 22 players chasing the ball. If your investments are all doing the same thing, that’s where the danger is, so make sure you’ve got the whole pitch covered.
“The star might be played every minute of every match. Will the team fall apart if they have an off day? If multiple investors are chasing one particular investment, then they’re probably buying it at a price higher than it’s worth. Who’s to say it’s not just a short-term trend? And who’s to say that buying it fits in with the rest of your overall plan?
“Investing isn’t about picking winners. It’s much less exciting than that. If we could control how investments performed, the world would be a very different place. We can’t – but we can spread our money, to be ready for their unpredictability.
“And then when your investments do go up and down, provided you’ve spread them smartly, you won’t have to play guessing games or make rash decisions when things happen.”
Think the 1966 England World Cup victory, the only time we have ever achieved it.
We had three great players, Gordon Banks in goal, Bobby Moore in central defence and Bobby Charlton running the midfield. Around them, were good, but not great, individuals, the likes of Alan Ball, Martin Peters and Geoff Hurst, the latter playing out of his skin to score a hat trick, still never matched in a final. Behind them were grafters, Nobby Stiles, George Cohen, Jack Charlton, Roger Hunt and Ray Wilson.
It’s the same with investments.
Teamwork depends on steady Eddie assets as much as the high fliers.
In football, you might have two geniuses, seven others who do themselves justice, and perhaps two below par.
US News comments: “Diversifying across sectors mitigates the risk of a long spell of underperformance, should a particular sector tank, like with tech during the dot-com bubble. Diversifying across geographies mitigates the possibility of a single country’s stock market performing poorly, such as the ‘lost decade’ for US stocks 2000–2009 and the recent Russian stock market crash.”
So, stick to sound economics and don’t wager on an England victory in the World Cup in Qatar later this year!