My wife and I racked our brains about ideas for a good family update. And for the first time, we couldn't think of anything! The kids keep getting sick from school, which is not very exciting.
I'm reminded of the fact that, as much as I hate to say it, my kids are getting older. When I started writing these family updates, my kids ranged from three to nine. Now it's eleven to seventeen. I've been looking back at some of my old family updates, and how much you forget is shocking. I'm so thankful I started doing these snippets of family life. We will keep these stories forever.
I fear that as the kids go away to college and into adulthood, I won't have anything interesting to tell you. Kids at home make for lots of good stories. Two parents in an empty nest can be a bit boring in comparison. Don't worry; I think I will still have lots of good content for the foreseeable future.
Above is a picture from my first family update.
CD rates are currently historically high. It is a temporary situation. I am writing the following article with the assumption interest rates revert to normal levels. Hopefully young adults won't have to pay 8% interest on their mortgages much longer.
Sam and Sarah Mayer, ages 83 and 85, go to visit a local financial advisor.
“Sonny boy,” Sarah quips, “We have $500,000 in the bank and it’s making basically nothing. We were wondering if we should invest it in something.”
“Well,” he remarked, “You guys are pretty darn old. I guess we can’t put you into anything too risky.”
“Old! We don’t even buy green bananas anymore,” she laughed.
“The standard rule is that you should subtract your age from 100 and that is how much you should put in the stock market,” the advisor informed them.
“So I guess we might want to consider putting 15% in the stock market and the rest into very conservative government bonds and money markets. Maybe even in some fixed annuities.”
Sam nodded. “Makes sense to us. We certainly don’t have time for our money to recover if the stock market crashes."
Sarah added, “We’re saving this money for our dear grandson anyway. If we don’t need it, we figure we can bless him with it. He had three great-grandkids for us!”
So Sam and Sarah put their money in this ultra-conservative portfolio and went home…never realizing their poor decision.
This anecdote outlines a concept I’ve battled for years — that as you get older, you need to become more and more conservative with your investments because you “don’t have enough time to make it back.”
Not only do I think this is a inaccurate idea, but the results can be incredibly expensive.
Let’s think about why this thinking is so faulty.
Markets recover very quickly. Even if they put 100% of their money in the stock market (which they shouldn’t), historically, recovery times have never been more than 3 or 4 years. So this whole concept of “We don’t don’t have time for this to recover” is assuming both of them will die in the next three or four years.
Granted, that is possible. So let's look at someone who invests 70% of their money in stocks and 30% in bonds. Remember that when stocks go down, bonds go up. In the past 50 years, the worst return would have been from 2008, where you would have lost 24%. Certainly not fun, but it’s not like you went bankrupt. With this portfolio you would have made all of the money back in a little over one year.
“But Dave, what happens if you need a bunch of money for medical expenses!”
I’ve spoken at length about how huge medical expenses simply do not happen as long as you are on Medicare.
But here is the main thrust.of my argument. There is an extremely high likelihood that Sam and Sarah will never need all their money. Certainly less than a 10% chance. They’re pretty long in the tooth, as they say. They are happy with their lifestyle. They don’t want more stuff. Money doesn’t mean much to them. Their budget is not going to increase.
So if you think about it, what is this money for? In other words, whose money is this really?
Answer: It’s their grandson’s. There is a very significant chance he will get most, if not all, of the money. So what does this mean?
They need to invest the money as their grandson would.
It’s as if the advisor sat down with their grandson directly and advised him on a portfolio. A lot of professionals in my industry would look upon this as blasphemy, but I've been doing this a long time. I have absolutely no doubt this is the appropriate strategy.
By Sam and Sarah investing the money according to their age, they are taking money away from their grandson. Probably a lot of money.
Let’s say this conversation happened ten years ago in 2013 and Sam and Sarah made it all the way to 2023.
If they had invested $500,000 in 15% stocks and 85% bonds, the current account balance would stand at around $900,000. Not bad! Certainly better than getting .1% at the bank.
But what if they used the 70% stock/30% bond mix? In 2023, the grand total reached over $1,500,000.
I’m sure Sam and Sarah’s grandson is grateful and will do great things with his $900,000. But the point is, they could have made him a millionaire. They left a lot of money on the table.
I strongly believe that anyone, regardless of age, should have at least 60-70% of their money in the stock market.
Don’t buy into the traditional thinking. It’s a bunch of nonsense. You need to invest your money based on what it is for, not your age.