Lessons From March Madness

Welcome to Mr. Stillman's Opus. I'm Rod Stutz hanging out with John here for a little while here. And John, you know, there are some things that we can learn about retirement planning from the NCAA tournament, which we all get excited about every year. And have you already started filling out your brackets for the NCAA tournament? Well, here's the thing. I stopped filling out brackets a few years ago. It just takes the fun out of it for me, because I couldn't stand having to root against myself. Like, I remember vividly one year, this was probably, I don't know, 14 or 15 years ago, and Vermont was a 13 seed and Syracuse was a 4 seed. Right. And I really, so this was when Tom Brennan coached Vermont, and I love that guy.

He's hilarious, great in press conferences, really good basketball coach. And I was like, oh man, I'd really like for Vermont to beat Syracuse, and I think they will. I kind of think they will. And I wanted to fill it in on my bracket, and I didn't. And then they beat them. Vermont beat Syracuse, and I was so mad that I hadn't filled that out on my bracket that I couldn't even enjoy the upset. Frustrated with yourself.

And that's when I said, you know what? I'm done filling out brackets. It takes the fun out of the upsets for me. If that upset messes up my bracket, it takes the fun out. And I want to just be able to enjoy the tournament, so I don't do the brackets anymore. Well, you know, for the longest time, I've always considered myself to know a little bit about basketball and follow the college season pretty closely. I haven't done as much this year as I have in the past, but I go into the brackets, and I go through those brackets, and I pick most things based on logic, not only the color of the uniforms, which some people do.

And then by the end of that first weekend, I'm just completely blown out of it. My chances of winning anything or doing really well are just totally out the window. And there's actually a retirement planning tie-in here, which is, I know why we're talking about this. I know that you're going to do this. Because if you think about when you finish your bracket, you agonize over who you're going to pick and who's going to go where. Once you fill it out, though, you feel pretty confident in it. And you'll argue with people, oh, no, that's not going to happen. Here's what's going to happen. You're very confident in your bracket.

Sure. But then by the end of the first weekend, yeah, it's all in shambles. It's in complete disarray by the end of the second round. And in a lot of ways, retirement planning is not that different in that we have to have a plan mapped out. We want to know what we expect to happen and what other things we're going to do when those things happen. But the reality is life happens and you have to be able to adapt as those things occur that you didn't anticipate, whether it's a health care issue, whether it's a job change you didn't see coming, whether you get a retirement buyout offer and you say, oh, well, maybe this is something I should take, or maybe it's something where you get laid off and you have to go find a new career. Whatever it is, things are going to happen in life and you have to be able to adapt to it, which is why if you just mapped out your retirement plan like you do your bracket and then you don't have the ability to change and adapt, well, you're just going to sit there and complain about how your plan is in shambles, just like you complain about your bracket being in shambles. But the reality is we want to put a plan together that allows you to make changes as you go so that you can react to what's happening around you, whether it's changes in your own life or changes in the investment world that you didn't expect. So what I tell a lot of people is that you're not really paying me to make a plan for you.

You're paying me to change the plan because it constantly has to be fluid based on what's going on in life. Well, that's one way why the NCAA tournament is different from retirement planning because in retirement planning, you can make those changes and you can reassess along the way. But in the NCAA bracketology, as they call it. Once it's done, it's done. Once you screw it up, I mean, you have a couple of upsets in those early rounds that screws up the whole bracket, you know.

And so retirement planning is actually you have a better chance of getting things right as long as you have a plan. So upsets, I mean, that's a really big deal. How would you compare that to things that happen in life that you're not prepared for? Oh, so upsets, everybody loves an upset, right? Everybody loves it when the 13 seed knocks off the four or the inevitable 12 beats the five or one time in history when the 16 beats the one. Like everybody loves the upset unless you're who? The team that got upset. Unless you're Virginia who gets beat by a 16 seed.

Well, suddenly this otherwise fantastic season you've had has now been completely ruined in the blink of an eye. And you always sort of have to feel bad for the one or two seeds that lose early because, yeah, as exciting as it is for the lesser team, that's a really good season down the drain if you're a one or two seed that doesn't make it to the sweet 16. So the upsets are a lot of fun for most people, but if you're on the other side, that upset isn't fun at all.

It completely ruined your year. Same thing in the financial world, right? Because everything that happens has winners and losers. And you might think that something happening in the investment world or in the financial world is great or terrible, but likely there's somebody else who thinks exactly the opposite. A market crash might be bad for most people, but that's really good news for short sellers. Or rising interest rates probably hurt you if you're invested in a lot of bond funds, a lot of fixed income type of investments in your portfolio. But for somebody who keeps a lot of money in the bank and savings accounts or money market, that rising interest rate helps them out there. A change in tax laws, as we just saw a year ago, might be very helpful to some people, might hurt other people. So you can't let anybody tell you that any particular outcome in the financial realm is inherently good or bad. The same would be true for investments.

No particular investment or particular tool or strategy is inherently good or bad. It all depends on what team you're on, and you have to find the things that fit you and your team. Well, I can't tell you how many times I've picked North Carolina to win it all, and I'm doing that this year as well. I'm not really filling out a bracket, but I'm really hoping and thinking that Carolina's going to win the whole darn thing. But picking your own team sometimes can get you in trouble.

How does that work with retirement planning? Well, so that's an emotional choice, right, to pick your team. And you try to assign logic to it.

You try to come up with all the reasons. Well, oh well, we're peaking at the right time. Yeah, we're going to win this year.

I mean, classic example, back in the days when I was still doing brackets, I remember one year in high school, I was convinced. I was like, you know, we've had a fairly underwhelming season. We were a three seed, and I said, you know what, we're going to get it together.

We're going to make a run. And I think we can pull this off as the three seed. Our one seed wasn't that strong that year. I said, we can win it this year, even though we're only a three seed. And we lost to Weber State in the first round.

So here my national champion is gone on Friday night, right? So I would liken that to people who put too much of their money in the company stock of the place they work. Because you feel like you have, I don't want to say insider information, because that sounds like insider trading, which is illegal. But when you're close to it, it's like being a fan of a team.

And you know everything about that team. And because you're so close to that team, your judgment is a little bit clouded. It allows you to make decisions that you wouldn't otherwise make as a truly objective observer. Well, same thing with your company stock. You work there, you believe in the company, you believe in the direction it's going. And very often what we see is people load up too much on company stock just because they're so close to it and they're emotionally rooting for that company.

And again, if you were a truly objective observer looking at it from the outside, you wouldn't be quite so heavily allocated in that one company. Okay, how about if you are one who makes lots of risky picks? In fact, going into the tournament, you choose the number 13 seed to beat the number 4 seed and all this sort of thing. And you're actually anticipating and expecting some big upsets.

That can get you in trouble too, can't it? Yeah, I mean it's great when they pan out if you pick that 14 over the 3 or whoever. But if you went through your bracket and you picked all of the 15 seeds to beat the 2s and all of the 14 seeds to beat the 3s, obviously it's not going to pan out like that.

That would be very foolish. You're going to get a lot more games wrong than you got right. And so if you're trying to pick an upset like that, you want to pick one or two and try to get that lightning strike thing right.

But if you miss that one, well it hasn't ruined your bracket. You still have a lot of other one seeds alive. And so with investing kind of the same thing, it's fine to take a couple of risks here and there, but you don't want all of your investments to be super high risk because you're just not going to hit a home run on all those. And you can't go all in on risk if you're retiring soon or if you need the money for something in a relatively short period of time. So maybe you're only in your 40s but you're saving money for a down payment on a house and it's far enough out that you don't want to save money just in the bank. You want to have some better growth than that so you're willing to take some risk. Well, we don't want to go super high risk because we don't want that money to get cut in half right before you need it for that down payment on your house.

Or maybe you're 60 and you're retiring in four years, same thing. We don't want too much risk with that money. We don't want to be making all these risky choices, picking the 15 seeds to beat the two seeds in your portfolio, if you will.

We don't want that and then you end up in a situation where that money that you need to create income in retirement just isn't there because you took too big of a hit at the wrong time. So don't get too risky with your bracket. Also don't get too risky with your investments. Some risk is fine but you want it to be calculated and organized.

Thanks for your thoughts on that, John. I just want you to know I'm not a betting man but if I were, I would be going out right now and win thousands and thousands of dollars on my NCAA tournament brackets. My predictions would all come true. Based on investing advice. Based on investing advice and your good common sense. I do what I can.

Alright, you've been listening to Mr. Stillman's Opus. Find him online at rosewoodwealthmanagement.com.