The Similarities Between Advanced Sports Analytics and Personal Capital
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The Similarities Between Advanced Sports Analytics and Personal Finance Software

Over the past decade, data has become increasingly important in the world of sports. This practice was first popularized by Billy Beane, General Manager of the low-budget Oakland A’s, who turned to data analytics to identify undervalued players who could help him contend for a championship. Beane identified these players by focusing on alternative metrics that were better predictors of future success than traditional statistics; for example, he found that on-base percentage and slugging percentage were better indicators than stolen bases, runs batted in, and batting average. His exploits were popularized in Michael Lewis’ bestselling book Moneyball and later a movie of the same name starring Brad Pitt, which showed readers how the A’s constructed their roster.

I grew up rooting for these A’s teams. My favorite player was Eric Chavez, the Gold Glove third basemen who anchored the A’s lineup during the Moneyball era. I was in the stands the night Scott Hatteberg hit a walk-off home run to stretch the A’s winning streak to an American League record 20 games. I remember crying whenever one of my favorite players was traded because he was too expensive for the A’s to afford. The Moneyball A’s were so fun to root for because they were a group of castoffs who managed to consistently be great.

Beane’s adoption of sports data and the resulting book that chronicled his success spawned a revolution. Now, nearly every professional sports team has a team of engineers, statisticians, and analysts that dissect every play, player, and playoff scenario. MIT hosts an annual sports analytics conference dedicated to the role of analytics in the sports industry.

In much the same way that Billy Beane used data to put a winning team on the field, new personal finance tools and applications use data to help clients build better spending and investing habits. These technologies are similar to advanced sports analytics in three ways: they provide detailed transaction information, monitor financial health, and ultimately show that you don’t have to pay top dollar to get top performance.

Detailed Transaction Information

Much like the advanced data that sports teams use to reveal how players perform in different situations, data about your cash flow (through a tool such as Personal Capital) can provide insight into your spending habits. While a player’s batting average is a comprehensive indicator of his prowess at the plate, it is more helpful to see how a player fares against right-handed pitching versus left-handed pitching. Similarly, data that shows the points a guard scores in the paint, at the free throw line, and from beyond the three-point line reveal far more about the player than his points per game. Advanced metrics reveal the innate behavior of players and offer opportunities for improvement.

Curious to see how much you’ve been spending on eating out in the past month? Or even the past year? You can do that with a personal finance app. Thinking about making budget cuts and eliminating financial clutter from your life? Identify which expenses are unnecessary using a cash flow tool. Want to see where you spend the most money on clothes? Tackle that too.

Using personal finance software, like Personal Capital’s Cash Flow tool, uncovered my financial problem areas. The biggest one? Restaurants. I’ve found that my disdain for cooking compounded with my love for eating out has led me to spend more money on restaurants than I initially budgeted for. Interestingly, using a personal finance app has also revealed which type of restaurants I like eating at the most: Italian and breakfast. In order to curb my restaurant spending I’m either going to learn to cook Italian food by watching more Mario Batali, settle for breakfast skillets at home, or keep my spending at other restaurants to a minimum. Given my love for penne vodka and pancakes, I’ll probably have to cut out the other restaurants.

Monitor Your Financial Health

One of the recent trends in sports analytics is health monitoring. By using wearables and measuring performance, teams are able to quantify how fatigued their players are, recognize strength imbalances, and take preventative action to minimize the risk of injury. Similarly, investing tools like Personal Capital ensure that your portfolio stays healthy in all economic conditions.

A few important things to know are when to rebalance your investment portfolio, how your portfolio’s performance compares to industry benchmarks, and how to identify hidden fees in your retirement account. By using personal finance software you can see how your portfolio is allocated across asset classes and get a sector breakdown of your investment in domestic equities. You’ll also learn when to rebalance your portfolio before it deviates from its optimal weights. I tried Personal Capital’s Portfolio Allocation tool and realized that I was well overweight in Financial Services stocks, and should be more invested in fixed-income.

By using personal finance software, I have a handy overview of my asset allocation, and I’m also able to dial into each asset class. For domestic equities, I’m able to see which sectors I’m overweight and underweight in. I’m able to see which of my funds hold more cash than others. I know how much I’m invested in foreign developed markets as well as emerging markets. This is powerful because I’m invested in index funds that don’t provide much of this information, making the Portfolio Allocation tool a must-have.

I also like having access to a good Retirement Fee Analyzer, to help me analyze my mutual fund holdings to determine how much of my investment returns are eroded by management fees. Unfortunately, investors don’t always know how much they’re paying, leading to a difference in the return investors see and the returns they take home. Select a retirement fee analysis tool, so you can avoid being in the dark about fund fees.

Armed with personal finance tools to analyze your portfolio allocation and retirement fees, you can make sure your portfolio stays healthy. With detailed analysis on your portfolio allocation, it’s easy to see where your portfolio is weak and imbalanced in the same way that teams assess the physical attributes of their players. With a retirement fee analysis, you can pinpoint unnecessarily high management fees that usually accompany mutual funds, allowing you to take preventative action by choosing cheaper funds that offer the same market exposure at lower rates.

You Don’t Have to Pay Top Dollar for Top Performance

Perhaps Beane’s greatest insight was that you can assemble a championship-level team without breaking the bank. When it comes to personal finance, I feel the same way. Solid financial advice doesn’t have to come at a premium price. When you’re selecting the right tool to manage your investments and monitor your spending, remember that you don’t need a high net worth or excessive management fees to access sophisticated, personalized financial advice.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Arun Sundaresan is a Portfolio Management Intern at Personal Capital. Arun has previously worked at Citigroup in London, and spent time at Personal Capital last summer. He is currently studying Finance at Washington University in St. Louis.
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This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

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