Investing Explained in Football Terms

Korey Knepper |

With College football kicking off in a couple of weeks (M-I-Z), and NFL pre-season in full swing, I thought this would be a great time to show the similarities between the game we love, and the industry that I love. Investing can be a complex and challenging topic, but my hope is that using terms and visuals that bring us back to football can help with understanding.

First off, the game has changed. It’s not all running and defense that will win you the game, you got to throw the ball. Not only do you have to throw it, in today’s NFL you must throw it a lot! Similarly, investing has seen changes since the days of the Steel Curtain. Companies don’t offer pension plans as much as they used to, and interest rates for things like Certificate of Deposits and bonds aren’t anything like they were in the 70s and 80s. In this scenario, Bonds are what we will describe as our running game, and cash alternatives (CDs, and money market funds) and saving habits, will be our defense.

Because of the changing rules and regulations of the game (you can’t even touch a receiver anymore), we have seen a change in how the game is played. Passing is at an all time high, and why wouldn’t it be, with guys like Mahomes, Allen, and Burrow slinging the ball around (sorry if I missed your favorite QB). For the purpose of this exercise, the passing game is the stock market. Regulations and low interest rates have allowed companies to grow very quickly, and we are seeing an all-time high in company valuations with companies like Apple, Microsoft and Google being worth over a trillion dollars. So, in today’s game, how can you win? How do we achieve our end goal (retirement or winning the game).

  1. Throw the BALL!

We know that it’s almost impossible to win in today’s NFL without an elite quarterback. Can it be done? Yes. Does it happen a lot? No. Winning without the QB being the center piece of your offense can only be done if everything else is elite (bonds and cash alternatives/savings plan) or you get lucky (inheritance). Like your quarterback, your investment portfolio should have the stocks as the foundation. Like the passing game, stocks can be volatile with plenty of ups and downs, but over time, the numbers work out. Some stocks are safer than others, and some offer a higher return than others. Where stocks and quarterbacks differ in this example is you can only have one quarterback, whereas we can have thousands of stocks in our portfolio. This is called diversification, and it is key to making sure your stocks have less unsystematic risk. The way to explain this in football terms would be by play type. If your passing offense is only throwing bubble screens, then you probably won’t gain much. If your passing game is all Hail Mary’s, you will fail a lot more times than you will be successful. Having a diverse passing game is key to winning a championship, just like having a diverse stock portfolio is key to accumulation assets for retirement. 

  1. Defense Wins Championships!

How many times have you heard that one. While it can help, it isn’t the end all be all of a football team. Similarly, a strong saving plan can help, but is not everything. My last blog post “Fully Utilizing Your Emergency Savings” shows how a strong saving plan can help your investment. Just like a great defense can help the offense by getting better field positioning, a savings plan that works well can help fund your retirement if done properly.

  1. Run the clock out!

When we have a lead and the game is almost over, it is time to run the ball. When we start approaching retirement and we have accumulated a good lead, it might be time to move more into bonds. Think of it like this, we run the ball, not just because it keeps the clock moving, but there is less chance of a turnover. Not only that, but there is a far less chance that that a fumble will score a touchdown compared to an interception. Turnovers are like recessions. If you run the ball you might go three and out, but you won’t get hurt as badly as if you turn the ball over in the passing game.

There is obviously way more to football and investing than what we cover in this article, and if you are interested in learning more about investing you can sign up to receive a free eBook here called Preparing for a Satisfying Retirement. And if you just want to talk football you can comment on the LinkedIn post that sent you here. Thanks for reading!