My wife is wicked smart. She earned her Ph.D. in Gerontology and Public Policy from the University of Southern California. She is a ferocious reader who tackles projects passionately and researches them intensely. Each night we take long walks to discuss various topics and try to solve the world’s problems – including the financial markets. About once or twice a year, however, she freaks out about our financial situation, which forces us to sit down to review our investments and financial plan, and when finished, she feels better.
Her concerns range from losing all our money to living too long. Our conversations run deep when we talk about our future. In addition to her fears, we explore charitable giving and retirement planning.
Let’s explore her main issues.
Will we lose all our money?
The stock market is down significantly; will we lose all our money? It’s a valid concern, especially since the Nasdaq is down 28% and long-term bonds have lost 32%. It has been a brutal year for all asset classes. She sees our account values and pays attention to the market, so she’s aware of the pain caused by falling prices. However, I tell her the odds of us losing all our money are less than zero. It’s impossible because we own stocks and bonds scattered worldwide, diversified by size, category, country, etc. On average, I tell her that stocks drop every four years or so, and I let her know I buy the dips and that the best time to buy stocks is when others are selling. And since the beginning of the year, we have continued to increase our allocation to equities because they will eventually recover. We’ve been married for thirty years, and during that time, the stock market has lost 50% of its value twice and suffered several corrections of 20% or more. Despite the downdrafts, stocks have risen more than 780% since our wedding anniversary, and I’m confident that the market will be considerably higher in another thirty years.
Will we run out of money?
My wife studied and taught gerontology, so she’s aware of longevity and aging. Our family tree also has a history of longevity, and she does not want to run out of money in retirement, which is another valid concern. One of the reasons we allocate more than 80% of our assets to stocks is to not run out of money when we are old and frail. Stocks are the best investment to combat inflation and longevity risk. I tell her I’m not worried about today’s stock market losses because we need our money to last another forty or fifty years. I don’t care that the market is down a few points this year because it will recover and eventually trade higher. Also, if we sell stocks today and buy bonds, we’ll lose money to inflation, a greater risk to our financial future than falling stocks.
What if you die early?
She is worried I might die early and leave her financially stranded. A few years ago, I wrote a love letter to my wife and daughter outlining the steps to take if I die early. The instructions are detailed, and I update them often. In addition to the love letter, we have adequate insurance and a family trust. I also have a succession plan for my business, so we’re covered on multiple fronts when I do pass away. More importantly, I’m going to heaven when I die, so she’ll always know where I hang out.
I treasure my wife and our long walks, and it’s an ideal time to connect and decompress while getting in 10,000 steps. I love our walk and talks because they get us out of the house and put us on neutral territory where all topics are fair game. We’ve solved many problems, but not all of them, so we will continue to walk because it is our most productive hour of the day.
If you tell the truth, you won’t have to remember anything. ~ Mark Twain
November 18, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.