How's your bracket?

Bill Parrott |
Categories
Financial Planning
retirement planning

Kansas?  Michigan State? Austin Peay?  Is your final-four bracket still intact?  According to ESPN only 1,140 of the 13 million entrants (.009%) picked the correct final four.    

A concentrated bet in your alma mater to win the tournament may still bear fruit if you attended Oklahoma, UNC, Villanova or Syracuse.  If you attended any other school, you’ll have to wait until next year.  

On January 13th, Westgate SuperBook had Syracuse as a 1,000 to 1 bet to win the entire tournament.   A nice pay-off if the Orange win it all.   Michigan State was originally listed as a favorite with odds of 5 to 1 to win it all.   You lost 100% of your bet had you placed it on Sparty.     

If you’d picked eight or sixteen teams to win the tournament, your odds of having a team in the final game go up dramatically.   You not only increase your chances of winning; you reduce your risk of losing.  A diversified basket of teams will keep you in the running to win it all.  You win by not losing.   How can the bracket help your investing?  

A concentrated bet in one stock may or may now work out.  If you’re concentrated in the right investment, life is good.  A portfolio of Apple, Berkshire Hathaway or McDonald’s has treated investors well over the years.  However, if you owned Enron or WorldCom, then your entire investment would have been wiped out.  

What does it mean to have a concentrated stock?   A stock that controls more than 25% of your portfolio is considered concentrated.   What should you do if you are holding a stock that is more than 25%?  If possible, try to reduce your holding to 5% or 10% of your investment portfolio.   With the extra money you can add more investments to help diversify your portfolio.

A diversified portfolio of index funds can keep you in the game.  An account that invests across sectors, categories and borders will do well over time.   

"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson

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

3/28/16

Note:  MSU odds set by Vegas Insider.