Football and Investing, are there parallels?

Spotlight: Parallels between Football and Investing

Football season is nearly upon us with the 2024 UEFA Euro football tournament starting this week. Even if you are not a football fan, it may feel like there is little you can do to escape the hype around it! The final match of the 2020 Euros between England and Italy was watched by more than 300m people globally (source BBC Sport). We think there are some parallels between a successful football strategy and a successful investment strategy which we explore below:

• Having a game plan – No football team starts a game without planning and similarly you shouldn’t approach investing without a strategy. Establish your financial goals, risk tolerance, and investment timeframe to create a robust game plan that guides your investment decisions for a successful outcome.

• Stick to the strategy – The world of football and investing can be fast-paced. The key is to stay patient, stick to your strategy and avoid making impulsive decisions.

• Work on consistency – Giving away penalties and scoring own goals are common mistakes in football just as people can make investment mistakes like chasing short term trends in markets. Generating consistent, reliable returns over time is more likely to lead to success over the long-term.

• Seek Balance – Winning football teams need both a strong attack and a strong defence. A winning diversified investment strategy balances risky assets with conservative ones. If all fails, protect your investments with a good goalkeeper through downside risk protection assets - a final line of defence when others get into trouble.

• Build a Winning Team – Football managers build their team by picking players with different skills and complementary playing styles. Winning portfolios can be built by picking investments with different characteristics (e.g. geographical exposures) and investment styles (e.g. income generating or value investing) bringing together a portfolio of diversified and complementary return sources that can do well in different economic conditions.

• Maintain fitness levels – As football players need to stay fit to deliver their best performance, keeping the managers in your portfolio fit for purpose is also important. Regular portfolio reviews will help ensure managers are being monitored and performing as expected.

• Hire an excellent coach – Your portfolio manager and/or financial planner can provide valuable insights on your investments, help you stay disciplined, and adjust your strategy as needed to reach your financial goals.

So if you are watching the Euros this summer you can draw parallels between the football and your finances in the importance of having a strategy, maintaining balance, and being adaptable.

The stats below highlight how Euro 2024 football fever expects to deliver a £2.75 billion boost to UK economy.

The Noise​

• UK unemployment unexpectedly rose to its highest level in more than 2.5 years, climbing to 4.4% in the three months through April per the Office for National Statistics. This is 0.1% higher than the previous reading for January – March, as well as being 0.1% higher than consensus expectations. This weakens the power of Rishi Sunak’s message that the economy is improving under his management. He can however point to a robust increase in wages, adjusted for inflation, which rose 2.3% in the three months to April, the strongest such reading in almost three years. Following both data releases, Sterling fell vs a basket of global currencies and government bond prices rose.

• UK GDP was flat in April, meeting economist forecasts following strong growth in early 2024. Rainy weather played a part in slowing economic growth, as it hurt construction and retail activity. Financial markets showed little reaction to the figures, as investors still consider the prospect of a Bank of England rate cut next week as remote. With the upcoming UK national election only weeks away, the opposition Labour party, that currently lead opinion polls, were quick to use the data to attack the incumbent Conservative party’s record in power.

• The World Bank announced this week that it will issue a new bond that will raise $200 million to support its sustainability activities and reforestation in the Amazon. The bond will provide financing for projects selected by Brazilian startup Mombak, which buys degraded land from farmers and ranchers or partners with them to replant native trees in the world’s largest rainforest.

The Numbers

The Nuance

Wednesday was an important day for those that keenly follow US markets. The latest consumer price inflation  (CPI) data was released in the morning, and the Federal Reserve announced their latest interest rate decision in the early afternoon.

Starting with consumer prices, they were unchanged in the 12 months through May from April’s data, as cheaper petrol and other goods offset higher costs for rental housing. That resulted in consumer prices rising 3.3% year-on-year, slightly below consensus estimates of 3.4%. Over the past two years, high inflation has soured Americans’ perceptions of the economy. This has come despite its continued expansion in the face of aggressive monetary policy tightening by the Federal Reserve. Though inflation is now at more tolerable levels, its heights over the past 24 months has eroded US President Biden’s popularity, amongst other reasons. It has been cited as one of the key factors that will determine the outcome of this year’s US presidential election.

Moving onto interest rates, the US central bank left its policy rate in the 5.25% - 5.50% range. With growth and unemployment lodged at levels better than the Fed considers sustainable in the long run, Fed Chair Jerome Powell said policymakers were content to leave rates where they are. He also noted that inflation had fallen over the past year without a major blow to the economy and believed there was no reason to think that couldn’t continue. The Federal Reserve also scaled back its rate cut expectations to just one cut in 2024, though market implied expectations continued to suggest that investors expect a rate cut in September and December this year.

With the Federal Reserve’s September Monetary Policy meeting just over a month before the US presidential election, speculation has grown that it will steer clear of cutting rates then to avoid appearing to favour one party or another. Under current Federal Reserve projections however, the first cut we are likely to see will be in December, after the election.