What the NFL and Retiring Rich Have in Common

Source: Ed Yourdon.

Besides the fourth-quarter comebacks, or scoring 20 points from one play in your Fantasy Football league, the best part of the NFL is an underappreciated part of the game: the decision to return kickoff or take a touchback.

It's a big question. Ever since the League changed the rules to kick off at the 35 yard line, there have been more opportunities than ever to simply knee the ball in your own endzone, and take the free 20 yards.

Few teams are doing it. In fact, two teams, the Chicago Bears and Tampa Bay Buccaneers had an average kickoff return of fewer than 20 yards. For them, taking a knee would have been better than running the kick back. A full 12 teams had an average return of 23 yards or fewer.

How this relates to investing
There is no free lunch in investing, but there's an easy option -- taking the average. The fact is, most investors fail to outperform the average -- the return of the stock market as a whole.

Most, like the Chicago Bears or Tampa Bay Buccaneers, try as hard as they can, hire the help of million-dollar managers, and yet still fail to outperform.

Sure you want to return that, son? Source: Shawn Campbell.

These managers, just like kick returners, are paid millions of dollars to wait in the endzone for the play to start. When the ball flies into their hands, sometimes they take the irrational choice -- actively managing the outcome even though the alternative, doing nothing, may be a much better choice.

And just like football, taking the active approach to running your own money creates big risks. When a star running back or wide receiver runs a ball out of their own endzone, the team risks a season-busting injury, a fumble on their own side of the field, or penalties that would have made the free 20 yards from the touchback all that more appealing.

When investors manage their own funds by actively selecting stocks, they risk big losses, or the potential they fail to keep up with the average. Failing to keep up with the average, even by 1 or 2 percentage points, can easily cost Average Joe $100,000 or more at retirement.

The key point
There's nothing wrong with being average, or taking the easy way out. Arguably, the Bears or Buccs may have had a better season if they had simply taken every touchback ever graciously offered to them. The same may be true even for teams who averaged more than 20 yards per return -- averages hide the cost of the bad returns and poor field position that follows.

Source: John Martinez Pavliga.

The point I want to make is that the average, in football or investing, is still pretty darn good. The average S&P 500 return has been about 10% (6.8% after inflation) since 1926. A touchback is still worth 20 yards. And both are "free" in the sense that it doesn't take any thought, knowledge, or skill to knee a ball or stash your cash in an index fund

The stock market doesn't pay you for working hard. It pays you for being smart. The smartest people are those who know their limitations -- those who know that maybe, just maybe, they should settle for the average. 

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