6 Ways Asset Allocation is Like Fantasy Football

Dessy John
May 13 · 5 min read

The principles behind favorable outcomes are surprisingly similar

Photo by Austin Distel on Unsplash

Like many who read about asset allocation, I have been a personal finance junkie for years. I also happen to be a raging fantasy football nerd. Over the years I’ve found that my interest in both domains are tied to optimization, predictive analytics, portfolio theory, and superhuman people doing superhuman things. Because everything in the personal finance space is so serious, here’s a change of pace with 6 similarities between asset allocation and fantasy football…

1. It’s about maximizing the probability of portfolio return

Different asset classes have different levels of risk and expected return. All that matters in the end is how your portfolio performs in aggregate. What this means in practice is that the majority of your portfolio should have asymmetrical reward relative to its risk (for example, a total stock market index fund). Since the stock market as a whole performs reliably well over a longer duration, over-weighting your portfolio with this exposure maximizes the likelihood for you to see strong performance over time.

The same is true in fantasy football. Winning your matchup on any given week is predicated on the combination of players on your roster having a higher output than that of your opponent. This means you need to have a well rounded roster from top to bottom and not just rely on Patrick Mahomes to throw 4 touchdowns every Sunday.

2. It’s ok to take a huge risk, as long as you have safer assets elsewhere

The “boring” asset strategy of mostly holding index funds is highly advisable for most investors. However, there’s nothing wrong with having some play money purely for the speculation and upside, provided it is a portion of your portfolio you are willing to risk severely under-performing. The obvious example of this is in various cryptocurrencies, especially those other than Bitcoin and Etherium. If you’re a Dogecoin investor, you know exactly what I’m talking about. Take a shot this upside play if you want, but make sure your foundation is rooted in more established assets like stocks, bonds, cash, and real estate.

The parallel in fantasy football is often referred to as a lottery ticket. These are usually wide receivers who might only catch one pass over the entire game but it ends up being an 80 yard touchdown. Plugging in a receiver like Mecole Hardman of the Kansas City Chiefs is like buying Dogecoin. If it hits it will hit big, but don’t bet your life savings on it.

3. Outliers eventually revert back to the mean

Weird things happen, both in the economy and in football. Over-performers and under-performers can trend longer than expected, but eventually get back to who they really are. If the stock market returns 30%, the odds of it sustaining that return the following year are probably not great given that its historical average is closer to 7% after inflation.

In the same way, fantasy football ALWAYS has guys who play well above or below their natural talent for a period of time. Just as you would rebalance your assets after they drift from your target allocation, you would consider trading for an under-performing player or trading away an over-performing player. Having a player scoring 5 touchdowns in their first 5 games of the season is like owning a hot IPO stock that is artificially propped up by unsustainable hype.

4. Goals impact strategy

How much risk and reward you factor into your asset allocation can greatly depend on your stage in life and what you are actually looking to accomplish with your investments. If you are young and expecting stable employment for the next few decades, you invest for maximum growth potential. If you are in or approaching retirement, you may be designing your portfolio for greater stability, income, and protecting your downside through bonds and rental properties.

In fantasy football, your goal is to simply out-score your opponent. If you are projected to lose, then you may look to maximize the upside of your roster by taking on greater risk. This may involve picking up a lesser quarterback who happens to have a great matchup and could produce his best stat line of the season. If you are projected to win by a significant margin, you simply don’t want to blow it by starting a player with a low floor in their range of likely outcomes. This might mean playing a wide receiver who is unlikely to have a huge game but consistently gets enough targets and receptions to be a safe play.

5. Scarcity matters

A major appeal of cryptocurrency, Bitcoin in particular, is as a hedge against inflation. With major concerns of inflation in today’s economy, many are flocking to Bitcoin given its finite supply. Even as we have moved off the gold standard decades ago, wealth is always grounded in some concept of scarcity. Having a million dollars would be meaningless if money was unlimited. Therefore, owning assets that are rare or limited have unique value, even if their intrinsic value is less than that of other assets.

The idea of scarcity in fantasy football plays out with the mad dash of acquiring running backs. Anyone who has played fantasy football knows that the majority of first round picks are running backs, even though the absolute value is highest with quarterbacks. At the end of the season the top overall scorers are almost exclusively quarterbacks, but the supply of fantasy-relevant quarterbacks effectively meets the demand. The running back talent pool on the other hand is in extremely short supply relative to those who need them.

6. We put our trust in people accomplishing unthinkable feats

When we invest our money in the market, we are investing in people. We are investing in visionaries. The stock market as a whole has seen tremendous returns throughout recent history but it has typically been carried by a few select companies. When we are betting on the market overall being worth substantially more in 10 or 20 years, we are effectively betting on the Elon Musks, Tim Cooks, and Jeff Bezos of the world (for better or worse) to drive world changing initiatives that create value in sustainable ways. The level of innovation from leaders and the thousands of people carrying out their visions are what we are ultimately investing in.

In fantasy football, we are glued to our televisions hoping that the elites in their arena, like Christian McCaffrey, Julio Jones, or Russell Wilson, can execute their craft better than their competition so that we can maximize OUR returns.

The takeaway

Fantasy football is fake with no real meaningful implications, while understanding your asset allocation can set you up to be financially free. When there are learnings we can take from our entertainment outlets and apply them to decisions impacting our quality of life, our leisure activities suddenly become productive.

Asset allocation is a huge part of financial literacy, and it should be made insightful, digestible, and entertaining. I hope you find my take valuable. The more we can do our part to discuss and spread financial literacy in an engaging way, the more we can enable people to take full control over their lives.

This article is intended for informational purposes only, and should not be considered financial or investment advice. You should consult a financial professional before making any major financial decisions.

Investor Dojo

Helping DIY investors boost their financial literacy

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