The late John Bogle, the founder of Vanguard and for many decades the strongest proponent of common sense investing, had a wonderful way with words. By turning a phrase inside out he could change one’s perspective completely.
During challenging markets he famously would say, “Don’t just do something. Stand there!”
Everyone has experienced that panicked feeling that can overcome even the coolest of investors. When stocks are down, it’s common to seek out advice on what to do.
How about nothing? Instead, as Bogle would say, stand there. Do nothing. In a more modern manner of speaking, be mindful.
If you had the blessing of a recent financial windfall, an inheritance or otherwise investable assets, what would you do with the money today?
Well, you might think, “I should invest it wisely with an eye toward long-term growth.” But the current financial markets might feel different. Stocks might be way down. Nobody seems to know what to do next.
You turn on the TV or browse online and the unsolicited advice pours in: “Stocks are up but could fall again! The pain is not over for bonds! Watch out for this investment or that investment!”
Now think about your first, gut reaction, “I should invest it wisely with an eye toward long-term growth.”
The thing about the long-term is that it’s long. Nothing about the current prices of stocks or bonds is important or even relevant to the prices of those investments in 10, 20, or 30 years.
In fact, there’s no evidence that stock valuations of today are relevant to stock prices in even five years, assuming you choose a broad-based fund of widely held companies.
The key is consistency. If the point at which you need your invested cash back is years away it won’t matter what you do today, so long as you actually do invest.
Yes, the proportion of stocks to bonds does matter. If your time horizon is just a few years away, leaning away from riskier assets such as stocks could make sense. If you need the money decades from now, owning stocks is important as a way to overcome inflation and grow your nest egg with confidence.
Personal goals
Let’s say you get a large check from the estate of a dear, departed relative. Take a moment to thank them for thinking of your future. Now, take another moment to really think about your future.
Your long-term savings likely are invested in a low-cost portfolio designed to help you reach your personal goals. There’s no reason to treat a windfall differently.
In short, there’s no reason to “do something” differently about your inheritance. Review your financial plan. If you don’t have one already, look for help creating one, invest the money, and move on.
Five years down the road you will not regret having stuck to your plan, regardless of the source of the money.
