January 13


Joe and Frank: A Fairy Tale with a Moral

Joe and Frank:  A Fairy Tale with a Moral

Here’s a story about two guys named Joe and Frank.

They both retired 25 years ago (1991) at age 65 with $1,000,000 in savings.   Two different people in two different parts of the country except for one big difference- Joe made his decisions based on fear, and Frank based his decisions on realistic expectations.

When Joe retired he went to the local bank and said, “I’m retired now, I can’t afford to lose anything.   I want to put all my money in a money market.”   In 1991 money markets were paying an average of 3.9% and Joe felt pretty good about that.  Of course, there was no way he could have known that interest rates would drop so low later on in his retired years.

Joe was fearful.  “I don’t want to spend any of this money unless I HAVE to.  I know my wife has been bothering me about getting a new kitchen, and I would love to visit the grandkids in Rhode Island, but…  I’m not making a salary anymore.  I have to be very careful with this.”

Over the next 25 years Joe scrimped and saved- never once needing to take anything out of his savings beyond a few thousand dollars here and there.  When he died in 2016, there was quite a bit of money still there.  Over 25 years of compounding interest inside the money market account had turned his $1,000,000 into $1,800,000.  Joe and his wife never actually got to enjoy any of his savings, but at least they didn’t run out of money.

Now Frank looked at things completely differently.  “I’ve worked my whole life so that I could enjoy the fruits of my labor in retirement.  We are going to put a pool in the backyard.  Both Mary and I love to swim and it will keep us active and healthy.  We are going to travel as much as we can- especially in our 60’s and 70’s.”

Frank went to a local advisor and said, “I want to invest in a diversified portfolio of stocks and bonds.  I want my money to keep working for me even though I am no longer making a salary.”

So Frank put 60% of his savings into stocks1 and 40% into bonds2– a very common portfolio asset mix.

Frank then starting taking out $70,000 a year from his portfolio; or 7% of the original value.  His friends called him crazy.  “You are too old for investing,” they would say.  “You are going to run out of money!”

So Frank starting spending the $70,000 each year on things that made him and his wife happy.  They spent an entire month in Australia.  The traveled up north for each of their grandkids’ birthdays.  Frank even bought himself a 1969 cherry red Chevy Camaro.

When Frank died in 2016, his kids gathered and looked at his investment statement.  How much money did Frank have left over in 2016?  He had taken out $1,750,000 over those 25 years.  His kids smiled at each other as they remembered all the crazy adventures him and Mom had with that money.

At Frank’s death $3,250,000 remained.   He started with $1,000,000, took out $1,750,000, and ended up with over three times the amount he started with.   He also ended up with twice as much as Joe.

The Moral of the Story:  You may be able to spend more money each month than you realize.

Moral #2:  Being “safe” with your money may not actually be safe at all!

Moral #3:  A well-diversified and balanced portfolio of stocks and bonds is a powerful wealth creation tool.

Be Blessed!


1- as measured by the S & P 500

2- as measured by the Barclay’s Aggregate Bond Index

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

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