Boardwalk, Marvin Gardens or St. James Place?

Bill Parrott |

Monopoly is one of the greatest board games of all time.   Who hasn’t played Monopoly for hours trying to acquire Boardwalk, railroads or hotels?  My family has enjoyed playing it for years. 

During the height of the depression, in 1935, Parker Brothers started to market Monopoly nationwide and it became a huge hit.[1]   I’m sure a number of people found comfort playing the game during the dark days of the depression.

What can we learn from playing Monopoly?

Patience.  A game of Monopoly can take hours sometimes days until a winner is crowned.  Patience is required if you want to be a successful investor as it may take months or years for your stocks to turn into winners.

Diversification.  It’s impossible to win if the only property you own is Boardwalk.  The rent for Boardwalk is $50.  However, if you also owned Park Place and put a hotel on Boardwalk the rent soars to $2,000 an increase of 3,900%!  In addition to the prime places on the board it helps to own railroads and utilities.   Your investment portfolio should be diversified so you can make money from multiple markets.

Cash flow. Collecting $200 when you pass Go is sweet.  Passing Go is similar to receiving a dividend from a stock.   A quarterly dividend is a nice gift and as long as you hold your stock you’ll get paid.  According to Morningstar there are 2,966 companies paying a dividend that yields over 3%.

Small Companies.  Who wants to own Mediterranean Avenue?  It’s probably considered a small cap as far as Monopoly goes.  The rent for this property is only $2.  It’s not much on the surface but it can add up over time.  A hotel raises the rent to $250 which is devastating if you just passed Go and landed on this property.  According to Dimensional Fund Advisors a dollar invested in small company stocks in 1926 grew to $16,743 by the end of 2015.   A dollar invested in Treasury Bills is worth $21.

Taxes.  It’s never fun to land on the luxury or income tax square because they both take money out of your cash pile.  It’s not possible to avoid taxes completely buy you can minimize them by investing in tax free or tax deferred accounts.  It’s also important to take advantage of your company retirement plan and fund your IRA’s. 

Expenses.  The rent due for the Electric Company or Water works can be up to ten times the amount shown on the dice.  If you land on Water Works and you roll box cars, the rent is going to cost you $120.  You should not leave your family expenses to a roll of the dice.  It’s important to get a handle on your expenses and lower them as much as possible.   The lower your expenses the larger your bank account.

Debt.  I’m sure you’ve been in marathon Monopoly match where someone, maybe you, has had to mortgage their property to survive.  A player with a number of mortgaged properties will eventually lose.  The debt level on their properties will crush them.  In real life a high debt level will eventually crush you as well.  The less debt you owe the more money you can invest.

Luck.  We all need a little luck in life and investing.  A “get out of jail free” card or “advance to go” card is something to cherish.  Luck is not a strategy nor can it be quantified but as Lefty Gomez said: “I’d rather be lucky than good.”

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.

June 9, 2016

[1] - Accessed 6/9/2016.