| She explained that her husband had died in 1975, when she was
only 58 years old, leaving her $750,000. (Keep in mind that amount, adjusted
for inflation, would be $1.9 Million today).
Her husband, before his death, had appointed two of his most
trusted business associates and friends as her trustees. They advised her,
"Since you need safety and income," to put her funds into government
bonds. Those bonds yielded 8%, which was $60,000 a year before taxes, about
$43,000 a year after taxes, or $3,600 per month, to live on. That was not
too bad at the time and she felt fine.
The problem is that today those bonds are worth $750,000 and
still yield 8%, $60,000 before taxes, $43,000 after taxes and $3,600 per
month. And today that $3,600 a month will only buy about one third of what
it bought in 1975!
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The result for this nice lady is a significantly lower standard
of living. She cannot travel as she would like and she cannot help
send her grandchildren to college. And she cried.
If she had just put some of it in high quality stocks (say 2/3)
and left the other 1/3 in the bonds, the
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Today she has a significantly lower standard of living: she
can't travel or help send her grandchild to college - and she cried.
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portfolio today would be worth about $1.9 Million after she
took her 8% each year to live on. That 8% this year would be $153,700 before
taxes about $107,000 after taxes or about $9,000 a month.
Protecting capital has a high price tag. Of course, stock market
investing has enough day- price fluctuation to make us uneasy sometimes.
But if one can focus several years out, instead of on next month's statement,
those market fluctuations tend to smooth out.
"The Stock Market is an efficient
system for transferring wealth from
the hands of the impatient into the
hands of the patient"
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