Are your financial planning brackets busted?

March 27, 2018

How to Prepare for Busted Financial Brackets

The annual madness associated with the college basketball tournament is in full swing. In the first round the number 1 seeded team lost and in the second round two number 2 seeds and two number 3 seeds lost. As these losses were not expected, there is not a single perfect bracket left in the Capital One March Madness Bracket Challenge Game.

The completion of a bracket is like creating a financial plan in that it is using historical information to make decisions about actions to take for the future. While everyone knows you can’t predict the future perfectly, there are countless sites offering expert opinions on how to improve the chances that your bracket will be the most reflective of what actually happens.

While you may be able to salvage your chances of winning the office pool if your bracket picks are a bit off, the impact on your future financial wellbeing may be significant if your expectations about the future are not met. So, what can you do to minimize the impact of future bracket buster financial events?

One step you can take is to ensure you are diversified. Being diversified is not limited to the number of stocks or mutual funds you have in your investment accounts but includes your entire financial picture. This includes ensuring you have enough cash on hand to meet several months of bills should you experience a drop income for a period of time. Thus, like a team needs to have a good bench if their top scorer is sidelined with an injury, it is important that you have adequate resources to meet you obligations until your income can return.

Another step you can take is to ensure your family is adequately protected in the event of a premature death. Financial planning or creating a game plan is based upon all team members contributing. However, if a key income source suddenly disappears due to a premature death, it is important that the remaining individuals have some way to cushion this loss with adequate financial resources. Life insurance is an important component of diversifying your risk as well as your financial assets.

A third step you could take would be to look at a variety of retirement scenarios. Frequently the most significant financial issue for families is retirement. Given the length of most retirements (25+ years) it is important to look at a variety of scenarios in an effort to identify the risk factors in retirement. These scenarios could include health care expenses, living longer than expected, or lower financial returns on accumulated investment assets.

While the future cannot be predicted with perfection, it can be instructive to plan for the unexpected so that a course of action can be identified prior to an event occurring as it can be more difficult to make a decision in the midst of the unexpected. While you can always submit more than one bracket in a contest, you only get one chance at retirement making planning for potential bracket busting events that much more important.

“Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.”