Another March Madness Article!
Okay – I am going for the low-hanging fruit here and using March Madness as a tie in for this week’s blog. Yes, it might be a bit lazy, but there are some good comparisons to be drawn between filling out your bracket (assuming you do such a thing) and investment decision making. I think trying to pick the “perfect bracket” is akin to picking the “perfect investment portfolio.” Both are nearly impossible. Although, I would suggest that picking the right (maybe not perfect) portfolio for your situation is much easier than filling out a winning bracket.
According to Neil Greenberg of The Washington Post, you would need to fill out 9,223,372,036,854,775,808 brackets to guarantee a winner. I’m relatively sure that’s nine quintillion! Good luck with that. Please read his full article if you are in any March Madness pools (unless it’s one I’m in!), as it’s pretty interesting and gives some good guidance. Spoiler: Michigan State is the best “value pick” to win it all according to his metrics.
On the investment-picking side of things, if you guessed Cash would be the best performing asset class in 2018, maybe you should be trying your luck at as many March Madness pools as possible! In fact, Cash assets (checking, savings, money markets etc.) were the only ones above 0% for the year. That hasn’t happened for a very long time. And, if you look at the “Ann.” column on the far right of the chart below (click to enlarge), you will see that Cash ranks second-to-last in terms of performance from 2004 through 2018.
You may have seen this type of chart before, but it’s one of our favorites since it highlights both the difficulty of predicting the future and the benefits of diversification. So far this year, you can see that Small Cap (US) is the best performing asset class, but it was -11% in 2018.
You can smooth out your ride by including multiple asset classes and rebalancing annually (most studies show that rebalancing more frequently doesn’t really help). It won’t have you performing the best in any particular year, but it will protect you from downturns in specific asset classes and get you as close to the best-of-both-worlds scenario as possible.
Good luck filling out your brackets, and if you do happen to hit it big in your pool, make sure you invest the proceeds in a diversified portfolio! 😊