Happy Solar Eclipse Day!
Fair warning - this note might not find mass appeal, but chances are there’s at least one person reading this that’s as excited as we are about the return of the fantasy football season, and this month’s newsletter is dedicated, dear reader, to you.
Before we begin, however, let us direct you back to our June newsletter, which ended with “buckle your seatbelts”. July was very much a no-seatbelts-needed month. Volatility was nowhere to be seen in the market. The VIX (a measure of volatility, sometimes considered a “fear gauge”), hit an all-time low. All-time, ever, never-before lower. At least 16 of the lowest 25 end-of-day levels on the VIX have happened this year. The market went 15 trading days (3 whole weeks!) without moving more than 0.3% in either direction in any one day. That’s absurd. That hasn’t happened since...ever. That has literally never happened before.
Then, just last week the VIX exploded like a failed North Korea missile launch (...too soon?). It was up 44% in a day (while the market dropped close to 2%). And then this past Monday it dropped 12% as the market rose by 1%, and now today (Thursday) the market is off again so VIX is up 6% as I write this (edit: up 16% at the end of the day). What a week.
Also this month, the final part of our Young Investors series with USA Today was published. You can find it here, on the off chance you don’t start your day with a cover-to-cover reading of the USA Today Money section.
Alright, back-patting over, let’s dive into this fantastical newsletter. Cue generic sports music.
As we have been preparing for our upcoming fantasy football drafts (yes, multiple), it dawned on us that a Venn diagram of our time over the last few weeks would look something like this:
And so, while bemoaning the smallness of that sleeping circle, we reflected on comments we have heard from time to time about how what we do is kind of like fantasy football, but with money. On the one hand, that’s doesn’t entirely miss the mark, at least when viewed through an investing lens; on the other hand though, yeah, it’s not really accurate at all. So, to usher in the football season, let’s look at that eclipse that happens as fantasy football passes through the world of finance (yes, that’s a bit of a stretch, we know, but deal with it. We can’t use eclipse puns again in a note until 2024!).
The first part of a successful fantasy football season is going into the draft with a strategy. That’s not to say there is only one “correct” strategy - RB/RB, WR/WR, best available...any strategy is a good strategy. It’s the same with personal finance. You have, at the outset, a finite amount of resources (like the standard $200 you have starting an auction draft), and need to best decide how to allocate those resources. What is most important to you? Saving up for a house? Putting money aside for your kids’ education down the road? Retirement? Paying down debt? There is no single “right” answer to this question, but there is a “right for you” answer that we can help you find.
The other part of a successful strategy is your ability to adapt that strategy in the face of unexpected developments - challenging or beneficial. If you get outbid on the last of the top-RB’s that you wanted, what do you do now? You could have the best financial plan in the world, but say that child you’re expecting turns out to be twins; maybe you’re on track for retirement 5 years down the road but your company gets bought and you get offered an early retirement package; maybe your in-laws decide to start living with you. What now? Lots of things can potentially derail an otherwise sound financial plan. That’s why it’s important to revisit your plan periodically. Check-in with yourself and see if the goals you currently have are still the ones you initially were planning for. Does anything need to be tweaked? Revised? Completely thrown out and started anew? The CFP Board (Certified Financial Planner) lists 6 steps in the financial planning process, and “doing the things you need to do” (slightly paraphrased) is only step 5. “Making sure they work” (also slightly paraphrased) is Step 6, and is an ongoing process.
2. Waaaay Too Much Information
There was a fantasy marathon on ESPN last week. 28 hours of fantasy football coverage in a row. And that’s to say nothing of all the content online, or on any of the other sports outlets (Sports Illustrated, Bleacher Report, NFL Network, etc.). You could probably drive yourself quite crazy polishing your crystal ball. Been there, done that.
It’s the exact same in finance. Replace “sleepers/busts” with “value stocks/traps”, “yards per game” and “touchdowns” with “earnings per share” and “p/e multiple”, ESPN/Bleacher Report/your sports network of choice with CNBC/Bloomberg/your business network of choice, and boom! Alchemy. There is no shortage of talking heads telling you what to do or analysis and statistics of stocks and funds to pore over. All the crystal ball polishing. So what does one do if a room full of monkeys and a dartboard is not readily available? Stick to point number one above. Make a plan and stick to it. Are you investing for retirement? Then ignore pretty much anything you hear on TV and don’t worry so much about expectations for the next quarter. Even if you are actually retiring next quarter.
Here at ATI, we use mostly passive ETFs (exchange-traded funds) in our investment portfolios because we believe that over the long-term, it is incredibly difficult for active management to outperform. There is a lot of data out there that we feel supports that conclusion. That does not, however, mean that we just close our eyes and let the market do what it does. For a more detailed explanation of our strategy, check out one of our very first notes - The “T” Word- from about a year and a half ago. The abridged version is “make sure it works”.
Dose of Reality
1. Continuous vs. Discrete Time Series
Most fantasy football leagues are set up as a series of weekly matchups, and you can get away with changing certain positions every week (streaming D/ST, I’m looking at you) or betting on DeSean Jackson getting free for a long TD given a terrible secondary in a certain week. Clearly, that’s not the case with your financial plan. With your personal finances, it’s all about consistency over the long-term. It’s about building habits that are sustainable. It’s about investing in a way that achieves your goals with the lowest possible risk, not investing to get the highest possible return in any given year (and in fact, as much as we might try to pretend otherwise, time and investments don’t “reset” Jan. 1 every year. Calendar year returns are about as arbitrary a number as “investment returns between solar eclipses”. Or blue moons*). A great 2017 for investments is pretty meaningless if December 2016 and January 2018 are miserable. Similarly, blowing out your budget for two months in a row has an effect that carries forward even if you then stick to it for the rest of the year.
2. Get Glasses
Fantasy sports are a bit myopic. Sure, there’s a lot of information out there (see above), but at the end of the day it all comes down to points. That’s it. The likelihood of your player getting those points varies based on a number of variables, but it all comes down to points. You get them, or you don’t.
It might be tempting to think of finance in a similar fashion - either you get investment returns, or you don’t - but what we’d like to do is expand what you see as finance, because truly it’s much more than just investing. It’s budgeting (perhaps not to find more money to invest but just to find a vacation next summer); it’s insurance (another type of risk management); it’s debt management (just as important as asset management!); it’s tax planning; it’s estate planning; at the end of the day, financial planning is a holistic approach to having the sustainable lifestyle you want to live. At least, that’s how we see it.
Have Fun With It
Fantasy football is a game. You should have fun with it. Unless you’re in one of those leagues where the loser every year has to get a permanent tattoo of the winner’s choosing, in which case we would ask - why? If it causes you to up your Xanax dosage and lose sleep every Sunday/Monday for four months (with the occasional Thursday/Saturday thrown in as the season progresses), perhaps it’s not for you.
Some people (guilty!) are way in to finance. Like, “budgets are sexy” in to finance. Other people, not so much. If looking at various health insurance options makes you go cross-eyed or you’d rather cuddle up with a rabid skunk than think about your investment portfolio, that’s fine. That’s why we’re here, in fact. Let us take that burden off your shoulders so you can spend your time and energy on the things that do get you excited.
On that note, get out there and watch the eclipse! But please don’t stare at the sun for too long, we don’t want to have to start publishing an audio version of this note because you blinded yourself. For those of you trapped inside or underground or not in that particular swath of mid-USA, this one’s for you:
*The next Blue Moon is supposed to be Jan. 31, 2018
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