During the week, Monday through Friday, you may expect to find me immersed in financial matters, be it real estate, corporate securities, mortgage lending, or similar enterprises. This is how my time is spent. But of course, what else? Investment is my business. So when the weekend arrives, I can then devote myself to the things I truly enjoy. And what is my diversion? Well, a good bit of my relaxation time is devoted to—perhaps you guessed it—financial matters. Actually, it's not unusual for a person's free time to be spent in following or observing one's usual occupation. This is a common practice, long referred to as a busman's holiday. In any event, this explains why I tune in regularly to financial radio programs. You can never tell when an important concept will be analyzed, or a useful tidbit thrown out.
That brings us to a recent Sunday. Before my wife and I joined friends for dinner, I spent a couple of hours hiking the hills nearby my home—with the earplugs of my Sony Walkman inserted securely. Tuning in to my favorite financial call-in show always makes the walk more brisk and the hills less steep. Though I'm often dismayed by the problems presented by callers, and sometimes take issue with the advice given, I consider the hours well spent. This time proved no exception. One call in particular made an impact, though its significance took a while to sink in.
The dilemma faced by this clearly middle-aged caller seemed basic. He possessed a few hundred thousand dollars in soon-to-mature certificates of deposit, and wanted to know where the proceeds should be invested until his scheduled retirement in fifteen years. The question symbolizes the quandary that clearly bedevils many Americans. I can think of no more fundamental problem: what to do with a sizeable chunk of money when retirement is a defined number of years in the future. I awaited the talk show host's response as eagerly as did the caller.
The advice, though circuitous in its delivery, ended up pretty clear-cut. Place all or most in no-load index funds, with minimal maintenance fees, comprising a mix of securities similar to the S&P 500 or Wilshire 5000 Total Market Index. He went on to explain that equity investments of this sort avoid serious risk. His argument ran like this: The unpredictability of individually selected stocks, the uncompetitiveness of interest-bearing obligations, and the perils of an uncertain economy dictate the tying of financial future to the nation's corporate dynamism. While acknowledging that such a program surely reflects the vagaries of the market, he maintained that over the long haul, no other strategy proved as effective.
My immediate reaction was one of incredulity. This is certainly not what I would have recommended, particularly during the early years of what appears to be a secular bear market. As such, it's not unreasonable to anticipate a decade or more with little, if any, stock appreciation. This caller might well find himself, fifteen years hence, with no discernable increase in net worth—definitely not the way to plan for retirement.
My thoughts then drifted to the plethora of investment opportunities available. Careful selection of corporate stock in sound industries paying reasonable dividends seemed a better option. Another ignored possibility: astutely chosen corporate bonds with generous returns of interest. Better yet, soundly backed mortgage investments to generate attractive yields. Or why didn't the host mention rental real estate to provide an attractive cash return and future appreciation? As I continued my trek, I tuned out the flow of words as I focused more on my dissatisfaction. By God, if that call had come to me, I would've handled it differently. That caller would have gotten the straight dope. Total market index funds . . . humph!
It's a few days later and I've taken time to reflect. My initial certainties don't seem quite so certain now. Though I hate to admit it, the talk show host's advice probably came closer to the intended mark than my ruminations. And why? Because of my grievous omission. I failed to consider the source.
Take a closer look at the question and from whom it came. It constituted a plea for guidance from a citizen who managed to accumulate several hundred thousand dollars in certificates of deposit over a half century. Nothing in his tone suggested an intimacy with securities or their selection. Neither did he display any familiarity with mortgage loans or display an interest in rental property. The odds are that, had he developed any such expertise over the past three decades, he would now be pursuing exactly those programs. The mere fact that he solicited advice on a call-in talk show confirmed that neither careful selection nor astute analysis entered into his investment pattern. The host, understanding this instinctively, provided exactly the correct advice: something to cause this fellow as little uncertainty as possible. It's no doubt preferable that his assets simply drift around at the convenience of the market over the next fifteen years, than that he follow a more aggressive agenda and get into real trouble.
A final word: Successful investment is an endeavor that requires direction and persistence. Many people will never put forth the effort to pull it off. It is for these persons that mutual funds—particularly the index funds—were designed.
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