March madness is one of my favorite times of the year. It refers to all the high school and college basketball tournaments occurring throughout the month, culminating with the NCAA tournament! It's a time when the underdogs of the world have their opportunity to knock off the big dogs! The excitement generated when it's one loss and your out is very tough to beat! March is filled with buzzer beaters and bracket busters, David's and Goliath's. For sheer drama, in my opinion there is nothing better!
I'm concerned we may also experience market madness this month! As you may recall, the stock market was very weak in the 4th quarter of last year. Then it did an about face and was quite strong in January and February. Now in March the market is dropping again. As I often tell my clients, I don't have a crystal ball. I don't know what's going to happen. But I'm concerned that the market could drop significantly and fairly soon. Whether it does or it doesn't, the point is that you must be prepared. If you're nearing retirement and need your money soon, you likely can't afford to take a big hit shortly before you retire. If that's the case you probably shouldn't have 80%-90% of your money in the stock market! If you need money in 3-6 months to buy a car that money probably shouldn't be in the stock market. On the other hand, if you're 25 and saving for retirement, it may not matter to you what the market does this month or even this year. The point is that every situation is different. Generally speaking, the sooner you need the money the more conservative you should be with it. For example, if you need to put down $100k for a down payment on a property in 6 months, that money should likely not be exposed to market risk and be accessible so it will be there when you need it. If you decide to put that money in the stock market instead and the market drops 20% you probably don't have time to recover from that before the money is needed. So in that example, you likely wouldn't have the $100k to put down, you might only have $80k. If you don't have other funds available to make up the difference then you have a big problem. The point is, don't get caught up in the current emotion of the market. Just because the market did well the last two months does not mean it will do well this month or the rest of this year. Don't take more risk than you can afford to take.
In March madness, thinking with your heart causes you to pick too many David's and not enough Goliath's. You could get lucky, but if form holds your downside is that you don't win your pool. Not a disaster, you probably had fun while it lasted. In market madness you could get lucky as well. But if you take too many chances you will probably get burned! The downside is much more severe than a losing bracket! The downside could be financial goals unmet and a standard of living below where it would have been. My advice is don't take the chance.
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