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Anyone who knows me, knows I love to tell stories from which we can learn real life lessons. Some stories might be pretty lame, but I don't think this is one of those.
I have two clients who both died last year. We'll call them Barry and Alvin. I had worked with both of them for more than a decade before I learned that they actually knew each other from college 60 years before and 2000 miles away. They were born in the same year, graduated college in the same year, married in the same year, and died in the same year. They even both retired in 1994 and lived off their nearly identical $3.5mil nest eggs during 23 years of retirement. As profound as their similarities were, their investing styles were polar opposites, as were their results.
Barry was fidgety and insecure, and Alvin was patient and optimistic. Barry would watch his money online every day and squeal with each nasty market drop, wondering each time if the sky was falling. Alvin barely noticed, and if he did, he was scanning his cash to buy more stocks at each drop.
As time went on Alvin's dividend earnings (yield) began to escalate as his value increased and company stock dividends increased and increased again. Conversely, Barry's income was derived mostly from interest, since bonds fit better with his low tolerance for market swings. Not only did this limit Barry's income potential, it caused greater taxes than Alvin paid on higher dividend income because interest is often taxable as ordinary income. Accordingly, Barry's portfolio was relegated to never gaining value because bonds mature in the future at their value today, and Barry would hold a stock at a profit and sell it whenever his whims said it turned negative. You can see how Barry ended up in the certainty of bonds. In contrast, Alvin also once told me that "certainty is over-rated". Indeed.
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