How fantasy portfolios can improve your game

Your Funds

November 13, 2005|By CHARLES JAFFE

The baseball season ended last month. Football is at midseason, hockey has returned and the basketball season just started. But mutual funds season runs all year long.

And for investors trying to get a better handle on choosing and managing an investment portfolio, here's an idea that is long overdue: fantasy mutual fund leagues.

Sure it's quirky, but so is the Fantasy Fashion League (, where players score points based on the actions of famous designers and celebrities.

Besides, a fantasy fund league is more personally productive than rotisserie baseball or football.

The idea is simple: Run an imaginary fund portfolio, aiming for a specific performance goal and shooting for maximum accuracy and consistency rather than biggest returns. You use the actual performance of real funds, but with imaginary cash and a scoring system that's about more than maximum gains.

No one has invented a fantasy funds rulebook and scorekeeping system, so here are things to consider when setting up your own league:

Players: Go it alone or with others. On your own, manage a fictitious portfolio against your real one, or try several different investment styles to see what might make you most comfortable in the future. Pit a conservative "team" filled with singles hitters against an aggressive portfolio of swing-for-the-fences funds, to see which approach might allow you to reach your goals without making you ill along the way.

Better yet, get co-workers, friends or family involved, and play against them. You can easily find sites, such as MarketWatch, that allow you to track multiple portfolios free.

Targets: Shooting only for top returns encourages risk-taking beyond what the normal investor can stand; your team should only include funds you might actually want to own in real life.

If you play solo, use your own objectives as a goal. If you need a 12 percent annual return to comfortably reach your goals, make that your target.

In a league, make the target a common goal, with risk or volatility factored in. If you spread money through six funds in different asset classes, you might shoot for a 2.5 percent quarterly return, awarding points for coming close to the target and subtracting points for falling below it.

The season: Unlike a sport's season, a fantasy funds league should run at least three years. Set up interim rewards for quarterly or annual performance and consistency, but remember that investing is a marathon.

Rules: You're trying to build asset-allocation skills, since studies show that how you spread money around is the biggest determinant of performance, larger even than which funds actually get picked.

With that in mind, limit choices to one fund per asset class. A basic "team" might include one pick in the aggressive growth, growth, growth-and-income, bond, international, and sector fund categories.

Trading: To make your fantasy feel real, include all costs for changing your mind. If you sell a fund that has made money, deduct applicable capital-gains taxes before reinvesting the proceeds.

Prizes: Losers, at various points in time, can buy the winners lunch.

Charles Jaffe is senior columnist for MarketWatch. He can be reached by mail at Box 70, Cohasset, Mass. 02025-0070.

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