What basketball taught me about the stock market and the financial services industry

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Basketball is a game of ups and downs.

It is of no surprise to anyone that the stock market is volatile. Some would even characterize it as “risky” and “dangerous”. There are days when the market is up and days when it is drastically down. There are indicators and factors that go into these sudden swings but ultimately nobody can perfectly time and predict the market.

Basketball is a fast-paced game. There are quick transitions from offense to defense, there are no stops, there is very little time to breathe. One second your team can be up by 8, then a minute later you can be down 10. Your opponent must never be underestimated and the second you take your foot off the gas/stop paying attention it could lead to an ending you did not see coming.

This ending that you did not see coming I will equate to a good retirement. Too many times we set it and forget it in regards to our own personal finances. We put off reviewing our accounts, we say we will “save more next month”, we say “that will never happen to me”. Then the unexpected happens…a huge market downtown. All you had invested in your 401k just got chopped by 30%. Now what to do you?

Or a separate example. You are now 3 years from retirement and realize that you do not have as much as you thought you did. The social security check you thought was going to be larger is actually smaller than you thought and you dipped into your retirement accounts early in order to pay for an alteration in your home. You now have to extend your retirement in order to make ends meet because you do not have your basic expenses covered by your retirement income/distributions. This is a bad place to be and I wouldn’t wish it on any of you.

Focus on what you can control.

This is a very understated point. For instance in the game of basketball when a team loses a game a very easy scapegoat is the referee. It is extremely easy to blame the referee and not take responsibility for the loss. Now there are some instances where the official can cost someone a game but for most part there were many other instances that could’ve went differently to avoid this loss. The referee does not affect your shooting mechanics. He does not affect your conditioning, he does not affect your vertical leap, he does not affect your will to win. The referee does not impact your ability to hit that open jumper. Your preparedness and repetition is what ultimately has the biggest impact on you, your game and the outcome.

 

What we can control is how many miles we run during the week, how many times we practice our plays, video reviewing, studying your opponent, how many free-throws we take in practice, game time situation drills, how many dribbling drills we do beforehand, plyometric training, how well we stretch before and after games. This is important because then when adversity shows itself in the game we are unfazed because we were prepared for it.

Asset allocation.

While we cannot control the stock market or predict when exactly the next huge market downturn will be we can be prepared for when it does happen.

The Power of Diversification

Ever heard the saying don’t put all your eggs in one basket? This applies to your retirement nest egg greatly as well. When an individual is too heavily invested in one stock, fund or sector of the market if there is any reaction then their portfolio will take a huge hit. I know you really love and believe in your company but having half of your retirement composed of company stock is not the best idea. In addition, having all your money in tech funds isn’t the best idea either because of 2 things: Volatility & Overlap. The problem with being in one sector is that sometimes you believe that even though the funds you have are by different companies they may have the same holdings. For instance they may both have Facebook in their top 5 holdings. Now say there is a huge scandal at FB HQ then what happens to your retirement portfolio? It goes down faster than you can read this sentence. However, if your portfolio was properly allocated and diversified then this scandal might not have had such a grave impact on your portfolio.

 

Volatility. We all have seen the movies of stock brokers and rich people getting crazy returns and doubling their money while they sleep. However, they do not always portray when these individuals lose it all or how risky/unrealistic some of these feats are. Many of you are not institutional investors and do not have over $1mil in investable assets, so you do not have access to these high earning funds. However, you still want those crazy returns but don’t want the ability for it to go down drastically. This I assure you is crazy talk. Generally, the higher earning potential of a fund, the higher the standard deviation for swings.

Focus on your goal/outcome.

Stop being so return focused and focus on what you ultimately want. A comfortable retirement where you can retire with more assets you thought possible and being able to sleep at night knowing that even if a crisis like 2008 repeats itself you are well positioned to weather the storm. Being able to know that you will have enough to pass on to next generations and create a family legacy. Not buy the ferrari or yacht today. It’s the little habits we begin today that will have the greatest impact on our future. Start making the right moves today so that you will be able to have peace of mind knowing that even if you are moving slowly you are moving in the right direction and tomorrow will be a better day than today.

Josh Jogwe is a Financial Professional, Self-published Author  “From Intern to Full-Time” on Amazon, Private Basketball Trainer & founder of  EZ Buckets BasketballTraining/Clothing, and UCI Alumni. On his free time he enjoys training children in the sport of basketball, helping individuals learn about financial wellness/personal finance, and spending time with his family.

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