Time to Play It Safe?

Bill Parrott |

In 1926 Mrs. Moats invested three dollars in separate investments.  She placed a dollar coin in three distinct boxes with strict instructions to not open them until December 31, 2015.  She invested one dollar in large company stocks for her “risky” box.   Her next dollar was invested in a “safe” portfolio of U.S. Treasury Bills.  In the third box, she kept her dollar in cash just in case box 1 and box 2 ended up worthless.  

After the coins were placed in the respective boxes, she buried them in her backyard.

On December 31, 2015, her grandchildren dug up the boxes to see how well her investments performed.   With all the trouble and turmoil during the past 89 years her grandchildren were convinced the safe investments had performed best.   Here is how each dollar fared.

Box 1 – Large Company Stocks.  Her $1 investment is now worth $5,386.  Her large company portfolio returned 10% per year.  Her “risky” portfolio endured years of negative returns and extreme volatility to dramatically outperform her “safe” investments.[1]

Box 2 – U.S. Treasury Bills.  Her $1 investment is now worth $21.[2]   Her “safe” portfolio averaged an annual return of 3.4%.  Her “safe” portfolio made money every year and never had a negative return.    

Box 3 – Cash.  The value of her 1926 dollar is now worth about 8 cents.   The purchasing power of her original dollar has been eroded by inflation.   Inflation averaged 2.9% per year during this 89 year stretch.[3]

The U.S. stock market is near an all-time high.  By some measures the stock market is fairly valued if not overvalued.   The public outcry for a stock market correction is increasing as the market climbs higher.  Is it time to play it safe?   Should you sell your stocks and move the money to cash?  In the short term, this strategy may appear prudent.  It would be nice to avoid another stock market correction.  

Here are a few things to consider before you sell your growth oriented investments.

1.       When should you sell your stocks?  Today?  Tomorrow?  Next week?  How will you know when it’s the right time to sell?   If you sold your stocks before last year’s presidential election, you missed a 16% return.

2.       If you sell your stocks, when should you buy them back?  How will you know when it’s safe to get back into the market?  If you were fortunate enough to sell your stocks prior to the 2008 Great Recession, but failed to get back into the market you missed out on a 192% gain.

3.       If you decide to keep your money in cash, you’ll lose money after applying taxes and inflation.   At the end of five years, the purchasing power of your dollar will lose about 15%.  In 1988, I could purchase four U.S. postage stamps with my dollar, today I can only buy two. [4]

Long term a safe investment is not so safe.  A buy and hold strategy based on your financial plan is one to employ.  Owning stocks for the long haul will give you the best opportunity to achieve generational wealth.

For whoever has will be given more, and they will have an abundance… ~ Matthew 25:29.

Bill Parrott is the President and CEO of Parrott Wealth Management.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

April 17, 2017


[1] Dimensional Fund Advisors 2016 Matrix Book.

[2] Ibid.

[3] Ibid.

[4] https://about.usps.com/who-we-are/postal-history/domestic-letter-rates-s..., Historian U.S. Postal Service, website accessed 4/21/2017.