Issue 20.11
It seems that everywhere we look, we hear news about the recent tragedies in Japan. Due to the tsunami and earthquake, many of Japan’s homes were destroyed. As I looked at the images, though, I couldn’t help but think positively about their future. Why? Because even though they took a drastic hit from two natural disasters, their foundations are still standing. I have seen so many images taken from airplanes and helicopters that show the foundations are still firmly standing where their homes used to be. I feel for the people who lost their homes but rebuilding will be so much easier because their foundations still stand.
How does this relate to finances? Well, your foundation represents your safe and secure money. Do you have enough in CDs, savings bonds and other safe investments that, if the market were to crash, you would still have a chance to rebuild? The walls of your financial home represent the low-risk/low-volatility investments which still need to be strong but not as strong as your foundation. Lastly, the roof represents your high-risk/high-volatility investments. Sadly, one thing I see when people come in to visit with me is that often their assets are 60% or more in high-risk/high-volatility investments.
Imagine that you walk into the office of your local contractor with $500,000 and ask him to build a home for you. You tell him that 60% of your budget should be spent on the quality of the roof. That’s $300,000! How do you think he’ll react?
We don’t tend to make silly mistakes like that when it comes to our homes. However, when it comes to our finances, it seems that the mistake is far too common. When you are retired, or even preparing for retirement, it is no longer practical to treat your finances this way. It is far more reasonable to begin focusing more on the foundation and less on the roof.
I’d like to share the example of the Egyptian pyramids with you. The pyramids of Giza were built somewhere between 2686 and 1690 BC. Though they’ve taken quite a few hits from weather and other natural causes, they are still standing today. Do you know why? Because the Egyptians focused more on the foundation than they did on the roof.
In retirement, your foundation is more important than ever. Make sure to sit down with a financial planner and see if you can rearrange your assets in a way that strengthens your foundation.
Eric Scott can be reached at (435)773-9444 or you can visit Eric’s office at 352 E. Riverside Dr. Ste. #B-4 in Saint George, Utah. Investment Advisory Services are provided by Brookstone Capital Management, LLC, an SEC registered Investment Advisor. Insurance services offered by Eric Scott Insurance Agency, Inc.