For years, I have described my father as “so conservative and risk-averse that he sat out the early 1980s,” a time when investors were able to achieve double-digit returns in a money-market fund.
The first time my father heard that description, I was giving a talk at a personal-finance fair. Afterward, he marveled at how comfortable I was talking about money and investments, because “I have no idea where you learned this stuff, but you didn’t get any of it from me.”
Indeed, I always credited my mother — still one of the savviest investors I know — with sparking my interest in money.
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But the man who thought he had nothing to teach me about personal finance was actually selling himself short. For years, he was the one person I could count on to read my work and then go try it out, calling fund companies, checking out websites, seeing if his portfolio was falling into the traps that I was warning investors about, reading the paperwork and more.
In the course of taking all of those actions and becoming a savvy investor, my father taught me more about money than he ever knew.
I should have told him, but I didn’t realize what his experience taught me about investing until recently.
In our last talks together, my dad — Herbert M. Jaffe — was more concerned about talking family than discussing money.
He died on October 11 at age 87, and since I never thanked him for the money lessons he impressed upon me long after I had become a financial columnist, or told him that he was so much more than the person I frequently described as “the quintessential average investor,” the least I can do now is share some of his lessons with you.
Nothing I learned from my father will turbocharge your portfolio returns or help you pick better mutual funds; all of it will help you keep investing in its proper perspective in your life.
• A “perfect fit” is better than an “optimal portfolio.” My dad liked to know and understand what he invested in; when he looked through the holdings of a mutual fund and saw a host of names he didn’t recognize, it made him nervous. As a result, no small-cap fund ever passed his sniff test. Every time he talked to the portfolio advisers he worked with at Fidelity and Vanguard, they told him exactly what I had said, namely that he had “a hole in the small-cap space.” They found other “suboptimal problems” too.
My father understood diversification, but he also understood comfort. Missing out on small-caps might have dampened the returns of his portfolio compared to the perfect asset allocation, but it never threatened his ability to reach his financial goals. Meanwhile, he slept well every night knowing what was in his portfolio.
If you have the choice between an optimal portfolio or an optimal night’s sleep, enjoy the nap.
• “Don’t mess it up” is a good investment mantra. Because my father was so risk-averse for so long, he lucked out when the 1990s came and helped him catch up for the years when he was more focused on his day job than his retirement savings. That said, once the oversized returns of the Internet bubble got him to the point where he was “set for life,” he was more concerned with protecting his nest egg than growing it. The security it gave him was priceless.
Having secured his don’t-mess-it-up-money against real loss, Dad felt free to take more risks with the rest, or just to spend it. Mostly he saved and invested the money, but he never worried about his strategy — or a market event like the financial crisis of 2008 — turning his life’s work into daily worries about running out of cash.
• All that matters is where you are, and what happens next. My father had a remarkable ability to remember his financial mistakes — so that he did not repeat them — but to never linger on them or to let them change his next move.
Over the years, he bought a few stocks that were duds, and had some others that he gave up on too soon, before they rebounded or went through a big buyout that could have lifted his returns significantly. He never let the rare mistake bother him, which is why he typically moved quickly to the next success.
“I can’t have that one back,” he told me recently, after I told him that a bank he had held for years — but that he gave up on in 2011 — finally had found the long-awaited buyer and the price pop he always envisioned. “There’s no sense thinking of what might have been. I’ve got what I’ve got, and I’d rather focus on that.”
• Seek counsel, but make your own judgments. My dad was big on “trust, but verify,” so whether he was getting financial advice from the pros or from his son — whether it was a new counselor or someone he had dealt with and followed for years — he took in suggestions, examined the research and came to his own conclusions. Taking that responsibility meant he had no one to blame but himself if things went wrong; given his natural cautious tendencies, it was a solid safeguard.
“I’m the one who has to live with the results,” he said, “so I’m the one who should make the decisions, even if all I am doing is confirming that [someone else’s] idea is the right move for me.”
• There is no one “right way.” Slow-and-steady won the race for my father, but that didn’t mean someone couldn’t go hard-and-fast or big-and-bold and get to the same place. They’re just different approaches to the same problem, but too many people jump from one strategy to the next and those changes leave them forever playing catch-up.
My father taught me that financial success is less about finding the proverbial “best strategy” than about coming up with “the best strategy for me.”
• The easiest way to make sure you get more out at the end is to put more in at the beginning. Since he couldn’t control the markets and wanted to mitigate risks, Dad worked hard at what he could control, saving more so that he could afford to manage the money conservatively, in keeping with his personality. He felt that savings was an accomplishment unto itself; watching it grow to where it could care for his loved ones was an achievement. In that way, he was an accomplished man who achieved his financial goals.
You could learn some things from a guy like that; I sure did.
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at firstname.lastname@example.org or at P.O. Box 70, Cohasset, MA 02025-0070.
Copyright, 2012, MarketWatch