I got a call recently from my cousin Irving (not his real name, of course), and he was quite perturbed. I asked him what was wrong, and he wanted to know if the insurance company that managed his 401(k) is safe. I said, “What the heck are you talking about, Irv? It’s a huge company, and as far as I know, it’s solid.” Irv then asked, “If I put all my money into the guaranteed account, is it safe?” I told him that his money is as safe as the company is, and since the company’s always advertising on TV with celebrities singing catchy jingles, I think it’s in good shape. “But,” I said, “if you’re that concerned, do your research and check out the company’s finances.”
I asked him why he was so anxious, and he started ranting. He believed that the United States was going to be in a nuclear war with North Korea. He went on to say that it’s actually Russia that is backing North Korea, and they will enter the war, too. I told Irv that he was being a little reactionary, but he persisted and wanted to know where his money would be safe. “Well,” I suggested, “U.S. bonds may be a safe–but not guaranteed–place to be during an economic or political crisis.” Irv immediately shot back, “Bonds suck, and they aren’t getting any return, so I sold all my bonds several months ago. Now I’m invested 100% in stocks.”
I tried to explain to Irv that combining stocks and bonds is a good thing because each will have its day in the sun, and historically, when stocks go down, bonds usually go up. But Irv wasn’t buying any of it. He told me that he also sold his Euro-Pacific fund (which, by the way, has been doing quite well in the last year) because of a nuclear war risk. I said, “Irv, if there’s a nuclear Armageddon, your money won’t be worth much anyway.”
Nonetheless, Irv persisted with his Magical Thinking argument that he could time the market, pick the best funds and get a great return with no risk. I told Irv his reasoning goes against the research of many economists who have won Nobel prizes for their studies of market behavior.
Our disagreement was rapidly devolving, but I tried one more tactic. I reminded Irv that he was going to retire soon, and he should be more concerned with income rather than trying to get the best return. Irv yelled back, “Dude, all you do is stick to your orthodoxy–your discipline of not trying to pick the winners and not trying to outguess the markets. What kind of advisor are you, anyway? I retorted, “Irv, I think you just answered your own question.”
Like I always say, investing should be boring. If you want excitement, try hang gliding. If you want to gamble with your money, go to Vegas.