Maybe you thought you could do better when you saw Mourinho substituting Fellaini on to defend a winning position or when Arsene Wenger refused to splash the cash on a star striker yet again or even when Pep Guardiola rested Sergio Aguero against Barcelona? Investing could be much like managing your own football team.
When you invest, you need to look at your strategies and tactics, your defenders, midfielders and attackers, substitute bench and coaches. With a right balance of these vital components and a strategic view to achieving long-term results, you are more likely to assemble a winning portfolio.
Strategies and tactics
Call it strategy, style or philosophy, all successful football managers adopt a certain way of playing football before modifying their tactics based on the individuals they have and the teams they face.
The Alex Fergusons, Arsene Wengers and Pep Guardiolas of the football world look to long-term strategies to deliver results on the football pitch. They understand the club from its youth system, its talent scout network, player management, tactical management and everything else in between.
Likewise, investors should apply the same concept when making investment decisions. They need to understand their risk profiles and appetites as well as know the risks they face when investing in different asset classes, ranging from money market funds, bonds, equities to alternate investments. These considerations should be incorporated into an investment strategy aimed at achieving long-term results while catering to short term adjustments.
Aggressive football managers will usually opt for a more offensive approach by setting out with an attacking line up , probably converting some midfielders to attackers or some defenders to midfielders in its formation. On the other hand, more defensive-minded managers will line-up conservatively by loading up on defenders at the expense of attackers, usually opting to play a lone attacker upfront in its formation.
The goalkeeper, defenders, midfielders and attackers
You cannot play with a team of just defenders or attackers. Similarly, a balance of the different asset classes needs to be achieved in assembling portfolios.
With defined "strategies and tactics", a football manager will be able to determine his line up with the right number of defenders, midfielders and attackers. Essentially, investors are doing the same thing by diversifying their portfolios with various asset classes.
Defenders are typically the bedrock of title-winning football teams. They do not need to have exciting skills and sometimes even lack pace to keep up with lightning quick strikers. However, they more than make up for it with their reliability and dependable performances that give confidence to the more exciting players in their team to attack and score goals. Even on occasions their team do not score, managers can trust that they will not concede silly goals because they have good defenders.
In the investing world, these are usually government bonds. These bonds issued by creditworthy and stable government agencies as well as those issued by highly-rated blue-chip companies are the defenders in an investor’s portfolio. They deliver stable, but understandably, lower returns to investors. They are often unexciting but highly trusted upon to shield investors during bear markets, recessions and market downturns.
The midfielders in a team are usually the engine-room. Driving the team forward during attacks and dropping back to provide additional cover for the team in defence. Because their performances usually determine the outcome of a football match, most managers place a greater emphasis on packing their midfields . Defensive minded managers like to crowd their teams with midfielders and even defensive midfielders in their formations. Similarly, risk averse investors can consider investment grade or country indexes of developed nations for their defensive midfield options.
Attackers are usually the trump cards of successful teams equipped with the potential to produce outrageous skills and amassing impressive goals tally. They are sometimes able to drag a team putting in a sluggish performance to win a game but at other times, they can go missing for the entire game. Managers rarely deploy more than two attackers, many usually opt for just one. In some cases, managers like Pep Guardiola and Vicente Del Bosque have even elected to go without a striker when they did not have appealing options.
Investors seeking to deploy attackers could take the same approach when looking for exciting investments. Such investments include high growth equities, smaller-capitalisation equities, high-yield bonds and even those with investments made in fast developing nations. These equities, like attackers, can provide very good returns if and when they perform well. On the other hand, investors do not always need to buy "attackers" if they do not find suitable investment vehicles to put their money in.
Every team needs a goalkeeper whose main role is to keep the ball out of the goal. The equivalent of a goalkeeper in the investing world would be your cash, fixed deposit, money market funds and of course, insurance. They hardly ever give you any returns, but you cannot do without them.
Keeping a well-balanced portfolio for the long term
Successful managers do not only consider players – they look at keeping a good substitute bench to take over non-performing players and ensure their team has good coaches. Investors should also adopt such a policy of monitoring, reviewing and/or re-balancing their portfolios to ensure they are constantly in sync with their investment objectives. They should also have "mentors" or "sources" that can provide sound advice.
Building a successful and diversified investment portfolio is like building a successful football team. Investors need to understand their individual risk tolerance and financial circumstances before they embark on their investment journey. This will allow them to select the most suitable investments by customising and diversifying their portfolio to achieve their long-term investments goals.