Humpty Dumpty Was Imprudent

You know the nursery rhyme, so I will not repeat it.  Think about it while I go on …

One of my seasoned client’s was in last month for her timely visit and assets review.  We had a good time talking about her money; Of course, she was in a good frame of mind during the visit.  Towards the end of it she says, “I just don’t know where all this money came from?”  I said, “Well, you know the secret.  The secret of investing is patience and your ongoing early and continuous contributions regardless of Mr. Market’s crazy and fickle nature.  Mr. Market is an erratic guy, over and under-valuing, and noisily puffing prices up and down.  You want a partner like that, because you can often buy high quality with low prices.  You just went about saving, and saving steadily, and never assuming there were any guarantees.” 

Other Humpty Dumptys were constantly on and off the wall.  A nest egg is not to be trifled with.  

The research I have seen shows clearly that over the long term, say, ten years or beyond, there is no such thing as volatility.  The volatility falls away and all you have is an average return of about 8%. Before taxes. (Jeremy Siegel’s talk to the May Symposium, FPA Philadelphia, 2002, also in Journal of Investment Consulting, J/J 2002, pg. 9 – 18.)  This is based on the S & P 500 and its reinvested dividends, pretax.  At that rate, money doubles in about 9 years.  What matters are the time horizon, purposeful diversification, and periodic rebalancing. 

A person therefore would approach his money like my client, who I will call a prudent person.  The dictionary defines prudence as, “a person who follows a sensible course, a wise step.”  An imprudent investor acts like Humpty Dumpty, who was on and off the wall and then had a great fall.  Mr. Dumpty was imprudent because the wall was not a particularly safe place for a person of his nature.

Mr. Dumpty’s imprudence is clear.  The market is surely unsafe if you are just going to hang out; playing around; from there you could fall and never get back together again.  If you know who you are as an investor, stay off the wall.

If you don’t know why you are getting on the wall (of any variable asset), please do not venture there.  Just stay off. Save more in the bank, CD or MM fund, or delay the goal or reduce your lifestyle goal … and don’t moan about the unfairness of splitting open because you fell down and could not get back up.  Be disciplined, prudent, and plan well.

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