“Life is a cabaret, old chum!” is a catchy tune from desperate times. By comparison, a three-tier bubbling fountain produces a softer sound that can endure through good times and bad.
The top pool holds enough for daily consumption, the middle pool stores what is needed to meet infrequent major demands, and the bottom pool accumulates what will be needed whenever the flow stops.
While the fountain is flowing, surplus from each pool overflows to the pool below, or back to nature in the case of the bottom pool. When the flow ceases, what is left in the three pools is all there will be available at that fountain.
The fountain is an obvious metaphor for cash flow to cover our daily bills, then the big expenses like a house or car, and finally retirement. But the metaphor can expand to attune our fountain’s performance to whatever we value in life—like children and family, community participation, education, travel, contentment and maybe a legacy.
However large or small the vision, there must be balance among the three pools; if we live life as a cabaret, nothing is left to flow into the other two pools…
Then what, old chum?
Many of us select our refrigerators more critically than we select our investments, so let us design an “investment refrigerator” to hold investments we hope will fund our retirement and our legacy.
Ready cash goes into the door shelves, about 10% of total holdings. Common stocks representing ownership in large cap and small cap company stocks, both international and domestic and of growth and of value qualities go onto the refrigeration compartment shelves.
The freezer compartment should hold bonds… short term and longer term, foreign and domestic, corporate, municipal, and government issues. These bonds will act like ice cubes to diminish spoilage among overall portfolio values during market power outages.
The percentage of our bond holdings will be larger or smaller than that of our stock holdings, depending upon how much market risk we can accept without panicking; choose the freezer size accordingly.
Bond holdings should be of a sufficient amount to give us the time we need to endure the most exciting market periods… time to buy stocks low and sell them high.
Now you can picture the dimensions of your investment refrigerator, so plug it in and fill it carefully as the years go by.
You will be glad you did.
The tiny splinter of teak wood that covered the shank of our old cheese slicer blade disintegrated in less than a year of use. The blade was worth keeping so I carved a new handle, epoxied it onto the blade and gave it two coats of varnish. It should last a lifetime.
If it does, I wonder who would appreciate this handy utensil as much as I do. Or will it be tossed out with a truckload of other possessions… some of them acquired from parents and grandparents now long gone.
Those valued items constitute my “estate,” and someone must deal with them when I am gone. I can either name a person I trust to make a good job of it, or the State of California will see to the task for me.
It is probably wise to organize my “stuff” by giving some of it away now, throwing away the less important things, and labeling those items I hope certain people will enjoy keeping for a while beyond my lifetime.
In short, I need to make a will describing who is to get what and naming an executor who can supervise the job.
Have you done this?
A tripod remains steady on an uneven surface, like a three-legged stool or table. A stable investment plan balances on three legs: the desire to make money, the desire not to lose money, and the length of time necessary to carry out the plan.
Such an “investment tripod” can stand firmly on an uneven surface: markets.
Markets fluctuate, introducing the element of risk. When markets tumble, fear drives some investors to sell their holdings at a loss which neutralizes their desire not to lose money…and that tripod tips over.
Greed makes some investors hold an investment beyond its highest possible price, crippling the desire to make money…and that tripod tips over.
The longer a properly balanced collection of investments can stay in the market, the more bumps it can absorb and return to or surpass average market performance over time. If the time horizon is too long, the investor dies before he can enjoy the results of his plan. If the time horizon is too short, the investor may be forced to accept less than average results…and in either case the tripod tips over.
Have you arranged a three-legged investment plan that won’t tip over?
<p”>“That which we manifest is before us; we are the creators of our own destiny. Be it through intention or ignorance, our successes and our failures have been brought on by none other than ourselves.” – Garth Stein, from “The Art of Racing in the Rain” (Harper, 2008).
A spinout on a rainy track ended the author’s racing days and prompted his reflection that in a race, the car usually goes where the driver’s eyes and mind are focused. Especially true when it is raining on the track, and an apt observation to remember when bad things happen around us.
When bad things happen with the weather, or to the stock market, or even in the global economy, we tend to lose our focus. At such times in our lives, it helps to be able to talk with someone who can keep us on track: a friend, a coach, a mentor, an advisor.
When the track gets slippery, seasoned financial advisors can and do prepare their clients to anticipate panic and to avoid making financial mistakes. The task is to regain focus. The goal here, as in everything we care about, is to drive and to finish well.
Douglas M. Roesser, CFP™