Peace of Mind Planning

Peace of Mind. I have spoken with many people in recent years who have had trouble sleeping at night because of the stress and anxiety they have from worrying about their money. It is often an issue of feeling that the level of risk they have with their money is uncomfortable for them in light of their age. It is an issue of time.

People tell me that when they call their broker and express concern after a market downturn, the broker will typically say, “Just hold on to them and they will come back.” That is usually true but just exactly how long will it take for them to come back? I have a copy of the front page of the New York Times from October 30^th, 1929… the day after the market crashed and the Great Depression began. The headline that day says:  “Market Crashes:  Brokers and Bankers Remain Optimistic.” No kidding … brokers were optimistic, calling their clients and telling them (surprise, surprise), “Just hold on to them and they will come back.” Well, the stock market did recover and get back to where it had been before the crash … in 1952, a full twenty three years later! More recently, in 1964, the Dow Jones Average peaked at 874, and then declined in value. It was not until 1981, more than seventeen years later that the Dow Jones Average hit … 875. Now, I am 43 years old. A 17 year or 23 year wait for my money to come back may be appropriate, but for a 70 year old that could simply be too long.

It is all about peace of mind. Consider the following ten year hypothetical scenario of two men, Mr. Tortoise and Mr. Hare, who each start out with $100,000. Mr. Hare has his money “in the market”, and Mr. Tortoise is in a safer place, where he enjoys slow but steady growth:

After having seven quite good years and just three bad years, Mr. Hare actually ends up with several hundred dollars less after ten years! The point of this example, however, is not who ended up with the most money, because the totals are almost the same. The real question is:  who in your opinion slept better during those ten years, Mr. Tortoise or Mr. Hare? It is hard to put a price tag on peace of mind.

Notice:  This is not intended as tax, investment or legal advice. Interest rates quoted are hypothetical and are for illustration purposes only. Consult a tax, legal or financial professional as to the applicability of any financial, tax or legal strategy for you.