You did your research. You analyzed the players, teams, coaches and match-ups. You made all the right picks – or so you thought. But after just a few games, your bracket is busted! What gives? And how is John, the guy who knows nothing of sports, ahead in the office pool?
Every year, there are low-seeded teams that beat the odds, souring millions of brackets. However, picking all the winning teams from the initial 64 in the tournament is nearly impossible.
Now imagine you had to pick from 2,800 teams. That’s how many companies are traded on the New York Stock Exchange, and that number is even greater if you consider all publicly traded companies. Even if you’re not looking at individual stocks, managing a portfolio can be tricky business. So how can you find the right balance for your investments and come out a winner? Here are a few lessons straight from your bracket.
Risk & Return
While the odds of filling out a perfect bracket are about 1 in 4 billion, each team’s ranking should play an important part in your evaluation.
Teams with higher rankings are expected to have better season records, players, coaches and facilities. Yet past performance isn’t an indicator of tournament success. Sound familiar? A common disclosure in investing reads, “Past performance is not a reliable indicator of future results.”
Large, established companies with higher valuations can be a safe bet for your portfolio, but don’t always offer the return potential of a smaller, up and coming company. On the flip side, those smaller companies may expose your portfolio to greater risk. Keep your personal tolerance for risk in mind, along with your goals. This will help as you move toward balancing your portfolio.
Hopefully, you mixed and matched when you filled out your bracket. If you picked the higher seed to advance every round, your four final teams would all be number one seeds – something that’s only happened once in the history of the NCAA basketball tournament.
To make the most of your portfolio, you’ll need to diversify. You don’t want to lean too heavily on any one investment, regardless of how successful that investment is today. Spreading your funds across a variety of asset classes and sectors can help you reduce risk and volatility in your portfolio.
Keep emotions in check
When the game is on the line, fans and players alike feel the weight of emotions. This year, one Northwestern fan let his emotions get the best of him on national television. By the end of the month, many more fans will end up with a case of March Sadness. Luckily, you can avoid these feelings when it comes to your investments.
When your assets are riding the ups and downs of the market, it’s easy to get frazzled. You may even feel the need to jump ship, but being impartial toward your investments has its benefits. If you allow the market to fluctuate, you can take advantage of dollar cost averaging – meaning you can buy more shares for the same dollar amount when values are low.
Remember, you’re in this for the long haul. Avoid watching the market too closely and let the power of compounding bring returns to your account.
If you can’t separate your emotions from the equation, there’s still hope. Look no further than your financial institution, and get set up with someone who can help. A trusted financial advisor will have the tools to help you grow or manage your portfolio.
Who knew brackets could give us investing lessons? By understanding risk, return and diversification, you can better understand what type of investor you are, and what it will take to meet your goals. While it may be a roller coaster ride, know that if you keep it together, you’ll be crowned the champion of your portfolio one day!
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