We love our collie. But thank God that I am not as clumsy as Lassie's young owner Timmy.
If I fell into a lake or quicksand, our dog would not run and save me like the imperturbable Lassie.
I see many people counting on a Lassie-like save for their financial planning. Folks, don't be counting on a dog hero because only you can pull yourself out of the proverbial well.
The two wells we often see in which clients get stuck are fear and greed.
When the markets are going up, greed makes it difficult to sit on cash — especially when cash is earning virtually nothing.
But you need two things to make investments work — time and compound interest. The stock market goes up over time because the economy grows over time.
But markets don't go straight up. If there was no risk in owning stocks, then they would provide predictable, and hence lower, returns. In environments like the current one, people discount the risk of stocks and therefore disregard when they need their money. Money that is going to be spent in the next two years should be saved, not invested.
On the fear side, people who are a bit anxious disconnect their long-term time frame with market valuations. Even if you are retiring in the next couple of years, your money needs to last at least through your life expectancy — and longer if you wish to provide a legacy.
