How fantasy football teaches you all you need to know about investing
Five weeks into the NFL season, fantasy football managers are either high-fiving themselves for their place in the standings or praying for basketball season to begin. No matter how your team is doing, fantasy football is a great way to get close to the experience of the game (without all the concussions). But did you know it also mimics the equally rough-and-tumble milieu of…investing for retirement?
Some fantasy team managers draft their teams painstakingly, scouring offseason news and preseason depth charts. Throughout the season, they make adjustments to their starting lineups. They’re essentially treating their fantasy team like an actively managed stock mutual fund, reacting to every fluctuation in the market (game-to-game stats) and constantly looking for undervalued assets (players) to give them the edge.
Understanding compound interest: No math required!
Other fantasy team managers take a more laissez-faire approach. These are the people (Doris in Accounts Payable, for example) who just let Yahoo or ESPN auto-draft their team’s roster. Or they’re the set-it-and-forget-it types who never adjust their starting lineups after the first week, letting the gridiron gods decide their team’s fate. Think of them as managers of an index stock mutual fund, which simply tracks a preselected group of stocks called an index (such as the S&P 500). Unlike active fund managers, index fund managers work with stocks that have been auto-drafted, if you will. (For this reason, index funds also tend to have lower fees.)
But here’s a surprising fact: Studies show that when left alone over many years, index funds actually outperform their actively managed cousins. And as anyone who’s played fantasy sports will tell you, hands-off managers often end up reaching the playoffs or even winning championships (remember Doris from Accounts Payable?), to the great chagrin of competitors who spend hours obsessing over and altering their squads each week.
So take the auto-draft approach to your IRA or 401(k): Invest in an index fund and hold it. You’ll probably come out ahead, and save yourself a lot of time and trouble. That’s not fantasy; it’s reality.
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