Money Obedience

A lot of people lost a lot of money in the recent decline of the stock markets. My wife and I were fortunate - we did not lose a lot of money. To be sure, we lost money, but it was not too bad in the scheme of things. And, to boot, we made some money back over the last few months, just like most savers who invest with their savings.

We invested our retirement savings in a pretty conservative way. We did this for two reasons. For one, a retirement calculator indicated that a conservative way of investing was a good (enough) strategy for us since we saved a good amount of money for retirement each year. We felt that we didn’t need to take the risks that go with the quest for high returns. Another reason is this: in my past line of work, my monthly income somewhat depended on the stock markets’ performance – so I was taking on a lot of risk as it is, just by working in a market-related job. If I had invested heavily in the stock market with my earnings I would double my risk exposure, and that did not seem sensible to me.

We’re in a somewhat different scenario, now that my income is not as dependent on the well-being of financial markets anymore. Some might say that I should probably invest a little more aggressively. Why am I not doing this?

First of all, I recently re-checked our retirement planning with a retirement calculator and found out that things are really not that bad for us, savings-wise. A minor adjustment – delaying my retirement by two years – would keep us on track even with a conservative way of investing. I don’t mind this adjustment since I like working and I am not even sure whether I ever want to retire fully.

Second, my source of income may change in the short term. It may become dependent on the stock market again if I find a job similar to what I had, or at least in a related line of work. If that is indeed the case, I would have to switch back to my previous asset allocation anyway. But it’s a good idea to keep one’s asset allocation rather stable, so I don’t see much need to make changes now.

Nevertheless, I will revisit this issue in a few months again - as everyone should. Then, (I hope) I will have a clearer picture about my professional future and income. With new information, I should be able to make a better determination about my asset allocation.