It was always a treat when my elementary teacher brought in the movie projector. One of my favorites 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.
Investors I work with often have dreams of leaving behind a legacy for the generations that will follow them. In this area I believe there is some generally accepted financial planning practices that might need to be reconsidered. One 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?” The look on my face led to her next comment. She said with a laugh, “Just because I’m old doesn’t mean I want to stop living.” She had enough income and conservative investments to live out her life, but she said the rest was for her posterity and she was investing it for them.
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.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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