Whether you call it soccer or football, the "beautiful game" can be a great analogy for long-term investing. With all eyes glued to this summer's tournament in Brazil, let's take a look at how investing may have more in common with the world's most popular sport than you might realize.
For instance, take a scenario where one team scores a goal and is winning 1 – 0 early in the first half. If you were the coach of that team, would you instruct your players to drop back and play defense to protect the lead?
It would probably be a little too early to employ that strategy in the first half, knowing that you would face constant pressure from the opposing team for the remainder of the game.
Instead, you would likely continue to play your style of game; you would continue to attack in order to keep the opposing team off-balance and increase your chances of winning.
Well, the same concept holds true for investing. In the scenario above, dropping back and playing defense with so much time left in the game might translate into investing heavily in fixed income.
You may be tempted to play it safe, with fixed-income investments, but with interest rates at historical lows, this may not be the best way to go. Depending on your financial situation, you and your financial advisor may want to consider allocating some of your investments into equities to create a balanced mix of asset classes that may help you manage risk and reduce the overall volatility in your portfolio. This could provide you with the offense you need to ensure that you are still in the game, so to speak.
Naturally, your coaching strategy may evolve as the match progresses, to keep up with the ebb and flow of the game. Protecting a 1 – 0 lead in the first half is much different than protecting a 1 – 0 lead with five minutes left to play. The same holds true for investing.
Your financial advisor will take your financial goals, time horizon, and risk tolerance into account and determine how best to diversify among stocks, bonds, and money market securities to develop a sound asset allocation plan.
Please keep in mind that no investment strategy can guarantee a profit or protect against a loss. Also keep in mind that all investments carry a certain amount of risk, including the possible loss of the principal amount invested.
Opinion column by Victor M. Mendez, Marketing Manager, Global Retail Marketing at MFS