Client Conversations Made Easy

Speaker Notes

When Should I Invest My Bonus or My Inheritance? 0 500,000 1,000,000 1,500,000 2,000,000 $2,500,000 2015 2017 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 Lump sum Invest $1,000 for 100 months $2,174,872 $1,166,452 "Time in the market is more important than timing the market." —Unknown Source: Bloomberg, 12/31/16. Performance data is the S&P 500 Index. Systematic investment plans do not assure a profit nor guarantee against loss in declining markets. Past performance does not guarantee future results. 55

There is an important distinction between automating your investments and determining what to do with a large financial windfall such as inheriting money, receiving a bonus, or selling a business. Automating your investments is about paying yourself first. Making sure money is going into the market every week, or bi-weekly. If stocks go down, you buy more shares.

When we have a large financial windfall there is a natural tendency to slowly put the money into the market over a long period of time. As Mark Twain said, "Don’t wait. The time is never just right." The example considers a $100,000 windfall received on October 18, 1987, the day before the market crash known as Black Monday. If the $100,000 windfall was invested on 10/18/87 then by close of business it would be worth $75,000. Ouch. However, by the spring of 1989, your investment would have surpassed $100,000 and more than $2.1 million today.

What if you instead decided to invest the money in the market in small increments and stored the rest of it safely in your house? Suppose you started in October 1987 and invested $1,000 every month (which might sound low for someone with a $100,000 windfall but actually amounts to almost twice the 401(k) annual contribution limit in 1987) for 100 months. By the end of October 1987 you would have been feeling pretty smart but less so today. That investment would now be worth $1.1 million, or over $1 million less than if you invested the full amount on the Friday before the worst one‐day correction in market history. As the saying goes, time in the market is more important than timing the market.