This is a true story..
My 86-year old mother called out of the blue today to complain about one of her investments. “It’s not earning enough,” she said. Her portfolio is composed of two funds: 50 percent in a US total market index fund and 50 percent in an intermediate-term bond index fund. She has owned these two funds in the same 50/50 allocation for almost 20 years.
I asked, “Mom, why the sudden interest in how you’re invested? You’ve owned these funds for a long-time and never complained.”
“Rick, I know, I know, just listen to me. I’ve been watching these two funds very closely for a few months. The stock fund does much better than the other fund. It always seems to do better. It just seems silly to own the bond fund when stocks make so much more.”
We then had “the talk” about periods when stocks don’t always perform well. Remember 2001? Remember 2008? She finally acquiesced, but not before adding, “You’re going to get it all anyway, so you do what’s best.”
And there you have it – why prolonged bull markets are dangerous. People forget what a bear market looks like and feels like. My mother, bless her soul, has it in her head that stocks are not risky anymore. They just keep going up.
Joe Kennedy was the father of former president John F. Kennedy. He made millions in the stock market in the roaring 20s and got out before the Great Depression. How did he know? According to Fortune magazine, “Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”
I’m not saying this is the end of the bull market. I’m saying I did the right thing and advised my mother to stay the course. Any adviser who is worth a darn would have said the same thing even if it means losing a client if stocks continue higher. That’s where I have an advantage. My mother can be mad, but she can’t fire me as her son.