In my financial advisor days, I had a client who was a successful commercial airline pilot, and had every intention of maintaining his comfortable lifestyle in retirement. When he and his wife came to me to discuss their retirement plan, I discovered that his company-sponsored 401(k) was made up entirely of cash. He was unaware that he had not invested his contributions and missed 22 years of compounding returns by staying out of the market. While this example is quite extreme, it begs the question – what is your relationship with cash?
The World has Changed
The return expectations we have for our investments aren’t what they used to be. Continued market ups and downs have pushed many of us out of the market and into cash. I have firsthand knowledge, both personally and professionally, that sitting in cash on the sidelines is one of the best ways for an investor to go nowhere fast. We miss opportunities by staying out of the market. If we take a closer look at our own behaviors, understanding what drives us personally, or in some cases uncovering the things that may derail us, and using this knowledge to drive our goals, we may be able to ensure we are doing everything we can to meet our goals.
In the interest of full disclosure, I must admit my own self-knowledge can be summed up by the adage, “the cobbler’s children have no shoes”. It’s true. My experience in financial services does not equate to being fully aware of my own drawbacks as an investor. In other words, I’m not perfect. I’m guilty of hoarding cash. I know that this cash is not just earning little to no return, it will lose spending power during times of inflation. Yet, for one reason or another, I’ve kept a hefty portion of my portfolio in cash for more than two years now, true to cobbler form. My colleagues have similar stories. Sue Thompson reveals in a Hindsight to Insight story that she and her husband spent so much time trying to decide what to do with a bonus check that they missed a 20% market surge.