It’s a new year and it feels like a great time to think about the future. There is often no better way to plan our future than to begin with a lesson or two from the past. I remember in Elementary school how excited we all were when the teacher showed up with a projector. In those days we didn’t have access to movies apart from the local theater, and T.V. offerings were limited to a few channels. One of my favorite school shows was the Disney cartoon story of Johnny Appleseed. Though a bit mythologized, John Chapman was a real-life pioneer who travelled across the country planting apple seeds for those who would follow long after. He was truly one who invested for the benefit of future generations.
Most investors, in addition to planning for their own needs, enjoy making preparations for the generations that may follow them. Yet in this area I believe there is some generally accepted financial planning practices that might need to be reconsidered. A common train of thought is that as we age, we should reduce exposure to the equity markets. The thinking is that the older a person gets, the less time they have to recover any losses. This practice is often implemented by following a basic principle that the percent of equities in a portfolio should be no more than a person’s age, subtracted from 100. So a 60 year old under this method could have up to 40% in equities, while a 90 year old would only be allowed 10%. The remainder would go to bonds, CD’s, and other lower risk assets.
What this method leaves out is that many people have more money than they need to live out their lives. Thus, they are being overly conservative with money that will be going to much younger heirs anyway. As an example, I was once meeting with a client who was 93 years old. As we did a thorough review of her portfolio, she said she had a desire to get involved in the high-tech industry that was in its infancy at the time. She specifically asked, “What small companies could I buy today that in 10 years might really take off?” I loved her attitude. She had plenty of money but continued investing because she enjoyed keeping her money working for her large posterity that would inherit it.
I believe that too many investors, in their later years, get overly conservative with money that they will never need. After handling hundreds of estate distributions, here is my own personal experience on the matter. I have found that heirs who inherit cash are more likely to spend it, than those who inherit equities. I often hear something like, “Grandma left me this stock so I want to hang on to it.”
I will not leave a pile of cash to my kids. I want to continue living and working and building so that I might leave behind an example of how I would like them to live. If I reach 100, I still hope everything about my life, including investments, will reflect my optimism for a great future. I want to be a Johnny Appleseed, planting seeds right up until the last day of my life for my kids and grandkids to enjoy and learn from.
Dan Wyson, CFP® is a long running national financial columnist, author of several books and CEO/Founder of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 Securities and Advisory services offered through Commonwealth Financial Network™, member FINRA/SIPC, a registered investment advisor.
