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June 16, 2021

EURO 2020: What football teaches us about money and investing

 


Euro 2020 had just begun last weekend. Now all football fans enjoy watching and discussing what is happening surrounding EURO 2020. But how can we relate football to money and investing?


 


Budgeting


One of the key decisions a manager has to make is to pick only 26 players out of hundreds to be in the Euro tournament team.


This is where the manager does his ‘budgeting’. Having his strategy and formation in mind, he picks players that should be enough to cover all areas (goalkeeper, defender, midfielder and forward) for the first team and also substitution.


For example, the formation is 4-4-2. So the team needs at least 3 goalkeepers, 8 defenders, 8 midfielders and 4 forwards. Others shall be chosen for special traits he wants, such as a midfielder that good in marking or freekicks.


Same as managing our own money, we do budgeting for all our expenses. This is to make sure we spend within our means and at the same time, can have a balanced lifestyle – necessity, savings, entertainment etc. The 50/30/20 rule is a good guideline for your budget allocation. 


 


Diversification


Go deeper into the forward’s list, we don’t want all of them to have the same type of play and skills. If a striker with speed can’t give us a goal, we go to plan B – substitute him with a good header striker that can be dangerous when we have corner or freekicks.


If we are talking about diversification in investment, we can relate this to “don’t put all your money in one investment.” Because every asset’s value that you buy comes with the market risk – could drop.


There is always an unexpected event. So, by spreading the money into an investment portfolio across different assets, it can reduce the risk that all of them will fall in value at the same time.


 


Emergency Fund


A winning team not only has many superstar players but excellent depth on their squad. Good players on the bench can help during tough times. For example, when trailing goals, we can bring on one more striker to help more on attacking.


With this analogy of the good bench players, we need an emergency fund to prepare for the unexpected financial surprises that may appear in life. Example: COVID-19 pandemic.


 


Opportunity Cost


Did you watch Euro 2020: Croatia’s first match versus England? Croatia lost 1-0.


But could they do better to prevent the defeat? Yes, they should have a proper center forward that can link up attacking play with the good players like Perisic and Modric.


With this, let say they could have 1 goal, which leads to a draw and get 1 point in the group. This 1 point is the opportunity cost that they missed when they went for the non-proper center forward.


This is the risk that when you make an investment decision, and with the benefit of experience, you realise you could have done better elsewhere.