Peter Hodson
Aug. 7, 2021
This past week, my extended family and I spent some time in Niagara Falls, Ont., for a big family celebration. The occasion? My father-in-law’s 100th birthday party. Ron still lives on his own and his mind is sharp. It was a good party, despite some COVID-19 limitations.
Ron and I discuss the market from time to time, he has a decent investment account and certainly does not need to worry about outliving his money these days. The party and market discussion got me thinking: What did Ron do right during his investment lifetime to set him up so well that he can sail into the sunset knowing he will never be a financial burden to his relatives, and will actually leave them a nice legacy when he passes on?
Well, like anything in life, it was a combination of luck and common sense. Let’s take a look at how Ron’s 100 years have set him up very well for the rest of his investment journey.
Time
As a centenarian, Ron, of course, has had a lot of time. Everyone in the investment world (including me) will tell you it is the time in the market, not timing the market, that works best. Ron likely bought his first stock 70 years ago (cut him some slack, he couldn’t specifically remember). That kind of long-term thinking can certainly help with an investment journey.
Pension
Ron was a teacher and principal for 35 years. He has now been retired longer than he worked. A teacher’s pension plan is pretty much the golden ticket for those wanting a smooth retirement. The pension plan is well-funded, indexed to inflation and has performed fairly well. Ron now gets a monthly pension that is significantly higher than any salary he earned when he was teaching 40 years ago.
Having a nice chunk of change come in every single month can be a significant advantage for an investor. For example, a pension can be a source of significant buying power in a market correction (and there have been many during the past 60 years) for those inclined to step into the market when others are panicking.
At the very least, that monthly income prevents an investor from having to dip into their capital for ongoing expenses, allowing more time for investments to grow and compound.
Calmness
Maybe it’s his years of being a principal, or just his general nature, but Ron doesn’t seem to get stressed out. I can’t vouch for his calmness 50-plus years ago, but I have been his son-in-law for the 2000 dot-com crash, 2002 recession, 2008 financial crisis, 2010 flash crash and last year’s pandemic meltdown. Not once did Ron phone me up in a panic wondering if he should sell his stocks. He might mention that his portfolio was at a record high when the markets were doing well, but I have never heard him lament the bad times.
Not everyone has a pension, but every investor could do better from just chilling out on occasion. Ron has been a great example of this for as long as I’ve known him.
No fixed income
Yes, an indexed defined-benefit pension is a significant advantage to a retiree. We have talked in the past about how investors can use their pensions as their fixed-income allocation in a portfolio set-up. But, as far as I know and I have asked (we can’t vouch for 100-per-cent memory accuracy here, either), Ron has never owned a bond in his life.
Having an all-equity portfolio is not for everyone, but it has certainly worked for Ron. Equities, given enough time (see point No. 1) have nicely outperformed bonds, putting Ron in his current envious position.
But in addition to avoiding fixed income, Ron has also leaned towards growth in his investments. As recently as last year, Ron asked me for some stock ideas for his tax-free savings account (TFSA). Considering his age, and looking at his future heirs across the room, I gave him a couple of very conservative investment ideas. At 99, he said, “Thanks, but I am looking for something with a little more action.” He went for some small-cap stocks instead. I hope they work out so I don’t have some angry sisters-in-law later on.
Frugal
Ron lived through the Great Depression as a child. The tough times and economic fallout were a harsh, but valuable lesson. As such, Ron has been fairly frugal with his budget and expenses all his life. Not to the point of cheapness — indeed, he is very generous — but just not extravagant. Not needlessly spending on useless items and not trying to keep up with the Joneses have given him more capital to invest over time. He paid off his mortgage a million years ago, and so he had even more money to set aside every month.
Everyone can have a happy and prosperous retirement. All you need to do is get a pension, live to 100, don’t foolishly spend your money, stay calm and focus on equities, not bonds. How come everyone is not living the high life? Alas, it is not so easy. But we do think there are some serious lessons still to be learned here. Happy birthday, Ron.
