Objective information about retirement, financial planning and investments

 

The Super Bowl and Your Investments

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It’s Super Bowl time and once again my beloved Packers are not playing for the twelfth consecutive year. They had a disappointing season, but made a run at a playoff spot only to fall short in the season finale at Lambeau Field.

Every year the Super Bowl Indicator is resurrected as a forecasting tool for the stock market.

The indicator says that a win by a team from the old pre-merger NFL is bullish for the stock market, while a win by a team from the old AFL is a bad sign for the markets. Looking at this year’s game, Philadelphia is an original NFL team while Kansas City is an original AFL team. Clearly investors should be rooting for the Eagles this year.

How has the Super Bowl Indicator done?

While in 2021 the indicator held true to form, it clearly did not in 2022. The LA Rams won the game but the stock market had its worst year since 2008 with the S&P 500 dropping by over 18%.

The indicator has failed to predict the direction of the stock market in six of the past seven years. Kansas City won the 2020 game and the market had an up year in spite of the impact of COVID-19. New England won the 2019 game and it was also an up year for the markets. Overall the indicator has held true for 41 of the 56 prior Super Bowls.

Quoted in a Wall Street Journal article before the 2016 game, respected Wall Street analyst Robert Stoval said, “There is no intellectual backing for this sort of thing, except that it works.”

Some notable misses for the indicator include:

  • St. Louis (an old NFL team that was formerly and is now again the L.A. Rams) won in 2000 and the market dropped.
  • Baltimore (an old NFL team that was formerly the original Cleveland Browns) won in 2001 and the market dropped. Perhaps the markets were confused since the Browns became an AFC team (along with the Steelers and the Colts) as part of the 1970 merger.
  • The New York Giants (an old NFL team) won in 2008 and the market tanked in what was the start of the financial crisis.
  • In 1970 the Kansas City Chiefs shocked the Minnesota Vikings and the Dow Jones Average ended the year up slightly.

Is this a valid investment strategy?

As far as your investments, I think you’ll agree that the outcome of the game should not dictate your strategy. Rather I suggest an investment strategy that incorporates some basic blocking and tackling:

  • financial plan should be the basis of your strategy. Any investment strategy that does not incorporate your goals, time horizon, and risk tolerance is flawed.
  • Take stock of where you are. What impact did the decline in both stocks and bonds in 2022 have on your portfolio? Perhaps it’s time to rebalance and to rethink your ongoing asset allocation.
  • Costs matter.  Low cost index mutual funds and ETFs can be great core holdings. Solid, well-managed active funds can also contribute to a well-diversified portfolio. In all cases make sure you are in the lowest cost share classes available to you.

View all accounts as part of a total portfolio. This means IRAs, your 401(k), taxable accounts, mutual funds, individual stocks and bonds, etc. Each individual holding should serve a purpose in terms of your overall strategy.

The Super Bowl Indicator is another fun piece of Super Bowl hype. Your investment strategy should be guided by your goals, your time horizon for the money and your tolerance for risk, not the outcome of a football game.

Not sure if your investments are right for your situation? Concerned about stock market volatility? Approaching retirement and want another opinion on where you stand? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

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Photo credit:  Flickr

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