We're deep into baseball's postseason, and we'll soon be left to fend for ourselves in the long, cold winter. But even in the offseason, the National Pastime can teach us many good lessons, like, the value of working as a team, and how even the best people can fail more often than not.
Baseball can teach us about money, too. When you examine the game, you can come away with some lessons that will help you manage your spending and your investments.
Consider these truths about the game we love.
1. It's a Long Season
Do you get upset when your baseball team loses a game or two? Do you have trouble with the ups and downs of the season? When you're a fan of team, it's easy to forget that there are a lot of games to be played, and the only thing that matters is where you finish.
Your investing approach should reflect a similar reality. Don't get emotional about a stock price being down on any individual day. Like a baseball team, the stock market can slump, but often rebounds. Keep your eyes on your long-term financial goals, and eventually you'll be popping Champagne just like a team that won the title.
2. Homers Are Great, But So Are Singles and Doubles
In baseball, you'd love to have a team that hits a lot of home runs. But you might be just as successful if you have a team that just gets on base and knocks in runs one by one. This is true when it comes to investing. While we'd all like to see that single stock that explodes and makes us rich, the reality is that most of your success will come from small, incremental gains that compound over time.
Read More: 10 Times You Shouldn't Invest in Stocks
3. Protect Your Lead
Every good baseball team has a "closer," or a pitcher who comes in late in the game to get the final outs. When investing, it's also smart to have a plan for protecting your investments when you approach retirement age. As you get older, it's wise to move away from growth stocks and other more volatile investments, and move toward bonds, stable dividend stocks, and cash. This way, your retirement fund will be protected even if there is a big downturn in the stock market.
4. It's Okay to Take a Risk
Sometimes in baseball, you need to try and run for home even though you might be tagged out. If you play too conservatively, you may not win. This is also true for investing. A young person who is investing for the long term will never get rich if they have a conservative portfolio. Most financial advisers recommend investing in mostly stocks when you're young, because the risk is usually outweighed by the potential for higher returns. Sure, you'll get burned sometimes. But more often than not, you'll come out ahead.
5. It's Simpler Than You Think
Baseball has a thick rule book, and it's not easy to master. But at it's core, it's pretty easy to understand. Throw the ball. Hit the ball. Catch the ball. And try to score more than your opponent. Money management and investing are simple things, too, even though they can seem intimidating. Spend less than you earn. Invest as much as you can, in things that mirror the overall performance of the stock market. Get the basics right, and you'll do fine.
6. Think Globally
Baseball may be an American sport, but it's an international game. It's played around the world, from the tropical ball fields of the Caribbean to busy cities like Tokyo. And Major League Baseball teams know that they need to look globally to find the very best talent. Your approach to money and investing should also take on an international approach. Consider investing in emerging markets that offer strong potential for growth. Take a look at currency trading, or even international commodities. There is money to be made if you look outside the United States to build your investment portfolio.
7. Limit Your Mistakes
No one's perfect, either in baseball or with their money. But frequent errors can mean the difference between winning and losing. In baseball, fielders want to catch the ball and throw it accurately. Batters want to avoid swinging at bad pitches. Pitchers want to avoid walking in the winning run.
Your finances are just as vulnerable to being hurt by mistakes. Don't buy things you can't afford. Don't invest in things you don't understand. Don't raid retirement funds without understanding the consequences. There are many things you can do wrong to send your financial planning off the rails. With baseball and with your money, it's important to play smart.
8. Look for Value
The best-selling book Moneyball by Michael Lewis outlined how the Oakland Athletics were able to field competitive teams despite having a lower payroll than most competitors. The book's core message was that the A's had developed ways to find players that were undervalued by the rest of the league. This desire to find "value" is a key part of money management. When looking to buy something, remember that expensive items aren't always the best. Look for a good combination of quality and price. When looking to purchase stocks, seek out companies that may be undervalued by the marketplace.