What Investors Can Learn From The World Cup

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-977843420&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/977843420/960×0.jpg?fit=scale&q; data-height=&q;660&q; data-width=&q;960&q;&g; Eden Hazard and Dries Mertens of Belgium put pressure on Armando Cooper of Panama during the 2018 FIFA World Cup Russia group G match between Belgium and Panama at Fisht Stadium on June 18, 2018 in Sochi, Russia. Jamie Squire – FIFA/FIFA via Getty Images

With the World Cup in full swing there are some important lessons for investors from this global soccer tournament.

&l;strong&g;Surprises Do Happen&l;/strong&g;

In the last World Cup, few expected Costa Rica to achieve much. Yet they made the quarter finals of the tournament. At the same time, highly regarded nations such as Spain, Italy and Portugal failed to make the knock out stage of the competition. It&s;s early in this tournament, but already we&s;ve seen Mexico beat the defending champions, Germany.

With investing it can be similar. Predicting a single specific event, or how any single team will fare is challenging. However, broader predictions are likely to be more accurate. For example, we may have trouble forecasting any specific game, and we&s;ll see some surprises this time, but we can be reasonably confident that several highly ranked teams such as Brazil, France, Spain, Portugal, Germany and Belgium will be among the quarter finalists.

On the other hand, lower ranked teams such as Saudi Arabia, South Korea, Australia, Nigeria, Panama and Morocco are less likely to advance. In the same way, it can be enormously hard to forecast how a single stock may do over a period of months, but we can be somewhat more confident when forecasting the broader markets over decades. Forecasts are more likely to be reliable when forecasting broad outcomes over longer periods, rather than specific&a;nbsp;single events. This is true of both sports and the markets.

&l;strong&g;In Investing, You Don&s;t Have To Back Just&a;nbsp;A Single Team&l;/strong&g;

Even though, unfortunately, the U.S. did not make this World Cup, when investing, it&s;s a bit different. You don&s;t just have to back a single country. You can &l;a href=&q;https://www.forbes.com/sites/simonmoore/2014/10/18/is-international-diversification-still-valuable/&q;&g;spread your bets across many countries&l;/a&g;, sectors and investment options. Doing this can help manage your risk. Just as a single team in the World Cup can do far better or worse than expected, so individual stocks can be risky, but groups of them less so. For example, individual &l;a href=&q;https://www.forbes.com/sites/simonmoore/2016/03/23/emerging-markets-may-help-your-portfolio-heres-why/#662fee114ecb&q;&g;emerging markets&l;/a&g; may be too risky in isolation, but as part of a portfolio they can have a positive impact on potential outcomes.

It can be tempting to own a lot of stock in a company that your are familiar with, such as your employer. However, this isn&s;t always a sound strategy. History has shown that even popular, large and well-respected companies can quickly and unexpectedly run into trouble, causing rapid stock price declines.

However, by owning a broad cross-section of stocks, such as &l;a href=&q;http://www.forbes.com/sites/simonmoore/2018/04/28/these-are-the-cheapest-u-s-etfs-right-now-should-you-buy-one/&q;&g;by tracking the S&a;amp;P 500 or a similar low-cost index&l;/a&g;, your returns, on average, will be similar to that of a single stock, but your risk will be significantly lower. Extending the same concept, you don&s;t have to invest only in the U.S. investing globally also has the potential to smooth your returns.

&l;strong&g;Defending Matters&l;/strong&g;

Often it&s;s the goal scorers such as Cristiano Ronaldo, Diego Costa and Harry Kane who attract attention at tournaments as they score goals and compete for the Golden Boot award. However, effective defending is necessary to win a championship, and exceptional defending and goalkeeping is often underrated relative to its importance to the team&s;s success.

A similar theme is true for investing. It can be very tempting to chase the hot stocks and want to own investments that have the potential to double or better over a short period of time. However, studies suggest that slow and steady investing can do better over the long-run and actually &l;a href=&q;https://www.forbes.com/sites/simonmoore/2018/06/09/how-owning-quality-stocks-can-help-performance/#3a64b5a3573d&q;&g;more stable companies tend to outperform&l;/a&g; over time. These companies may not have a single exceptional piece of good news, but the slow and steady delivery of improving results can really add up over time. Also, having bonds in your portfolio can help too. Yes, they are unlikely to deliver the strong returns that stocks can in a great year, but in a down market they can help preserve your wealth. It&s;s important to remember that stocks can decline once every three years based on history, even though the recent history of good performance may tempt us to forget that.

So remember that when investing as in sports, starting from a strong defense and not being too aggressive in your approach, actually has the potential to help your returns over time.&l;/p&g;

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