March Madness - Your Investment Strategy

It’s the most wonderful time of the year. No not Christmas; one of the biggest sporting competitions of the year is underway – the NCAA March Madness! For the next few weeks NCAA Men & Women’s Basketball teams will complete against one another to see who will make it to the ‘big dance’ and who will go home crying. Tough competition, major upsets and bragging rights are experienced by both basketball teams and fans alike. Across the world numerous individuals have filled out brackets, making a guess on who will win/lose in the tournament. For every person who is competing there are just as many strategies in choosing their winners. Here are a few used in Human Investing’s office:

  • Choosing the better ranked team (Each team is seeded 1-16, with 1 as the strongest team in their region.)
  • If mascots were to fight who would win
  • Consider a team’s (average margin of victory) x (Conference RPI)
  • Let colors be your guide – pick your favorite team colors
  • Flip a coin
  • Ask your kids to help
  • Following the crowd
  • Google isn’t a bad strategy either

At the end of the day there are upsets and sometimes the most absurd strategy comes out ahead. When it comes to investing, left to their own devices most people have a similar experience with picking an investment strategy as they do with filing out a march madness bracket. Unfortunately for investors, the verdict is out: they aren’t doing a very good job. By the end of 2016, the S&P 500 had a 20yr annualized return of 7.68%. For the same time period, the average investor had an annualized return of only 2.29%, trailing the S&P significantly by 5.39%.*

*Dalbar; Blackrock

*Dalbar; Blackrock

See the effects of the annualized return of stock and bonds on $10,000 over 20 years, compared to the “Average Investor.” A gap of over $33,000, jaw dropping. 

*Dalbar; Blackrock

*Dalbar; Blackrock

The decisions investors make about how to diversify, the time they choose to get into or out of the market, fees they pay or underperforming funds they choose cause them to generate returns far lower than the overall market.

Don’t leave your retirement savings to chance. Have a process:

1.     Build an investment strategy that is tailored to your goals and time line:

  • Start by answering the “Why.” Why are you investing? Is it to cover the cost of living at retirement so that you can continue to provide for you and your family? Or is it something else?
  • Only after the “Why” should you figure out the “How.” Do you feel comfortable managing your investments yourself? If you don’t, get help. 
    • Invest in a Target Date Date fund, built for an investment timeline that matches your date of need to utilize your investment dollars.
    • Hire an advisor to customize and implement an investment strategy based on your “Why.” Human Investing can help, come talk to us.

2.     Know yourself, know your risk: 

  • Be aware and understand how your investments perform and react in different markets. Make sure you are comfortable with the risks associated with your investment strategy. If you are not, its time to go back and reassess the “How” of your financial plan.
  • Having a plan and understanding how your investments work can help you stay the course and block out the noise which may hinder the decision-making process. A plan can help us approach our important financial decisions rationally rather than defaulting to impulse. 

3.     Maintain & Monitor:

  • Keep tabs of your account. Check in but avoid making frequent changes.
  • Rebalance: Take a moment to rebalance your portfolio. As investments perform differently in different markets, ratios of investments in your portfolio will naturally change overtime. Bringing your portfolio back to the intentional investment ratios by rebalancing annually is a great habit. Automate this process if possible.
  • Update your investment plan as life changes. 

Don’t leave your retirement to the flip of a coin or by following what everyone else is doing. Whether you need help building a strategy to save for retirement or want pointers on how to fill out your March Madness Bracket, let us know. Human Investing is here to help.


Further Reading: Identifying your investment Risk 


Sources: *BlackRock; Bloomberg; Informa Investment Solutions; Dalbar. Past performance is no guarantee of future results. It is not possible to directly invest in an index. Oil is represented by the change in price of the NYMEX Light Sweet Crude Future contract. Contract size is 1,000 barrels with a contract price quoted in U.S. Dollars and Cents per barrel. Delivery dates take place every month of the year. Gold is represented by the change in the spot price of gold in USD per ounce. Homes are represented by the National Association of Realtors’ (NAR) Existing One Family Home Sales Median Price Index. Stocks are represented by the S&P 500 Index, an unmanaged index that consists of the common stocks of 500 large- capitalization companies, within various industrial sectors, most of which are listed on the New York Stock Exchange. Bonds are represented by the BBG Barclay U.S. Aggregate Bond Index, an unmanaged market-weighted index that consists of investment-grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and government agency issues with at least 1 year to maturity. International Stocks are represented by the MSCI EAFE Index, a broad-based measure of international stock performance. Inflation is represented by the Consumer Price Index. Average Investor is represented by Dalbar’s average asset allocation investor return, which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/16 to match Dalbar’s most recent analysis. 


Will Kellar