One last sports analogy, and I’m done. At least for a little while. Promise.
It’s March. Which means I’m a bit crazy. Ski season is winding down, and March Madness is winding up. And UNC-Chapel Hill is going to the dance. Go Heels!
And here come the bracket pools – a chance for fun, friendly competition, and maybe a little money.
The way to increase the level of all three? Know the rules of the game.
Same goes for investing.
What the Heck Is a Bracket?
The collegiate men’s basketball tournament starts in March, spans three weekends, and usually ends by the first weekend in April.
By the first Thursday of the tournament, there are typically 64 teams. They play a single-elimination tournament until the final two teams battle it out for the championship title.
The list of competing teams and who plays against who typically comes out the Sunday or Monday before the first Thursday. This is called the bracket.
When those awaited brackets arrive, groups of people – friends, family, office colleagues, etc. – will have contests to see who can pick the most winners in that bracket.
(And, yes, there’s a tournament and bracket for the women, too, but that bracket is used way less frequently. I know…big surprise.)
In investing, we talk about tax brackets – totally different concepts and visuals for another blog post. You only need the gist of taxes to understand this blog.
Figure Out the Scoring System
Besides figuring out where to get a tournament bracket and fill it out, the next big question is, How is the contest scored?
This is important.
You might make different decisions if you knew what it took to win. I’ve seen some contests where if you picked the championship winner – a pick worth 32 points – your chances of winning the whole thing increase dramatically because picking a first-round winner was only worth 2 points.
In another variation, the points earned each round might be the same, making picking a lot of game winners in the first round critical to winning the contest because there are 32 games in that round compared to one game in the final round.
Strategies can change based on the scoring rules.
Investments Have “Scoring Systems” Too
There’s the obvious one: Taxes.
Investments can be taxable, tax-deferred or tax-free.
In basketball, shooting from inside the three-point line usually results in more points than shooting from three-point range (it’s further away).
Same with investing: You want to make sure you’re getting the best opportunity to make good money.
If you get an 8% return on a taxable investment but your effective tax bracket is 50%, the effective rate on that investment is 4% (8% minus 50%). A 5% tax-free investment would make you more money because the effective rate is also 5%.
You can also go from a man-to-man defense to a zone defense.
Roth conversions are a great example: Pay off your government partner in taxes now to get tax-free returns in the future when the opportunity arises and you have the resources to do so.
Ultimately, You Want To Win
The best strategy of all integrates many sub-strategies to maintain flexibility and options for as long as possible because we don’t know what challenge you’ll be up against next.
Allocating your money among many types of investments – both in type, tax treatment, and philosophy – gives you all those sub-strategies to weather any challenge and take advantage of any opportunity.
If you want to talk about the NCAA Tournament bracket or tax brackets, please reach out.
About the Author:
Jessica Lanning JD, CFP® brings focus and perspective to your individual financial needs to identify your opportunities for investment and wealth. Regardless of what you’ve done before or what “mistakes” you think you’ve made, Jessica can help get you back on track quickly and safely. As a former practicing lawyer, she brings a comprehensive approach to legal, tax, and financial challenges so that her clients can enjoy peace of mind. A huge proponent of conscious decision-making, Jessica makes sure her clients are educated and informed so that they make sound decisions with clarity and confidence. Lanning Financial Inc. is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.