If you're a baseball fan, you're no doubt aware that the major league All-Star Game is being played on July 12. But while you'll probably appreciate the grace and skill of the players, you may not realize just how much a baseball team can teach you about other aspects of life — such as investing.
Specifically, consider the following characteristics:
Consistency: Baseball teams need to be consistent. They choose quality players and must have the patience and discipline to stick with those players during slumps. As an investor, you should choose quality investments and have the patience and discipline to stick with them over the long haul.
Diversification: A baseball team doesn't have just one type of player — it contains pitchers, catchers, infielders and outfielders. Your portfolio also needs to be diversified because if you own only a single type of investment, and a market downturn strikes that asset class particularly hard, your portfolio could take a big hit. Owning a diversified mix of stocks, bonds, government securities, certificates of deposit (CDs) and other investments can help reduce the effect of market volatility on your holdings. Keep in mind, though, that diversification, by itself, can't guarantee a profit or protect against loss.
Unity: While a baseball team contains a diverse collection of players, they all strive toward a common goal. And the mix of investments in your portfolio needs to work together to help achieve the various goals you've established, such as a comfortable retirement, college for your children and a legacy for your family. To work toward your individual objectives, you will need to create an investment mix that's based on your risk tolerance, time horizon, family situation and other factors.
Flexibility: While every member of a professional baseball team is talented, one might be better than another in a given situation. For instance, a faster runner might pinch-run for someone else. And as you move on in your "game" of life, you will need flexibility in making your investment decisions. As one example, when you near retirement, you may want to reduce your exposure to risk somewhat, so you might decide to replace some — but certainly not all — of your growth-oriented vehicles with investments that can offer greater protection of your principal.