Money Matters

A Tale of Two Investors

[ February 2020 | By Jim Elder, Finance Editor ]

It was the best of times; it was the worst of times. But this story isn’t about two cities. It’s about two investors. Two brothers, actually—Billy and Randy.

Ten years ago, their mother passed away. After her funeral, the two brothers came into my office. I handed each of them a check for $400,000 from their mother’s estate. I asked them, “Now what do you want to do with your inheritance?”

Billy immediately chimed in and said that he wanted me to invest it into a diversified portfolio of no-load mutual funds. He further stated that he was only 55 years old and planned to keep on working.

After Billy finished, I asked Randy what his plans were with his new fortune. Randy thought for a moment and slowly mumbled that he wanted to follow his older brother and invest the money. He said he also planned to work until retirement age.

So I asked more questions to help create a portfolio suitable for each of the brothers. The accounts were opened and I began to invest the money in each of their accounts.

The assets began to gradually grow in value. Everything was going well until…the phone rang. It was Randy. He sheepishly said that he needed some money from his investment account to pay for repairs to his car. I asked him if he had an emergency account to pay for the repairs. He replied that he used to have an emergency savings account but he had drained it last month when he had to upgrade the television so he could watch sports with his new satellite dish.

Upgrading a TV is hardly an emergency. I asked how much money he would need to repair his car. He said $5,000. After that phone call, I thought that this was just a special occasion and Randy wouldn’t call again.

A month later, Randy did call again, asking for more money, this time for a new motorcycle. A few weeks later, he called again, saying he needed a bigger trailer for his motorcycle.

The phone calls continued, along with the excuses, such as: Their daughter needed to move. The house needed the bathroom remodeled. They needed a bigger truck to tow his motorcycle. He needed a hot tub for his sore back.

After several years, Randy drained his entire inheritance while, after ten years, Billy grew his account to over one million dollars. One brother spent his entire inheritance and the other invested it and was now enjoying his nest egg.

Now that Billy was retired, he decided to withdraw the standard amount of 4 percent ($40,000) from his million dollar portfolio, which would provide income for the rest of his life. Billy was now enjoying his inheritance by being able to travel around the world with his wife and restore classic cars.

“A fool and his money are soon parted.” Proverbs 21:20 *