Zen and the Art of Investing a Lump Sum
Caitlin slipped on her shoes and coat before walking down the path to her Toyota, which she had parked in front of her house. She opened the door, dropped into the driver’s seat and sat for a moment. Caitlin planned to meet a handful of friends that evening. It was a book club group that met once a month. But instead of talking about their most recent book, Caitlin had other ideas.
Caitlin worked as an optometrist. Two weeks previous, she sold her business, paid off her debts, and now had about $1 million in her savings account. She knew she should invest it. But when was the perfect time? The stock market had been jumping around like a five-year old on a sugar binge. Several reports on television said stocks were going to slide even further. But one economist said it was a good time to buy.
“I know who to ask at the book club,” she said, speaking out loud as she pulled her car onto the street.
She drove onto Tracey’s driveway and noticed that most of her friends were already there. They wouldn’t hear her knock, so she opened the door herself and walked into the living room.
Tina was the woman Caitlin wanted to speak to most. The 65-year old had been investing in the stock market since she was 25 years old. In 1980, she started to invest $200 a month from her schoolteacher’s salary. It represented about 15 percent of her income. She continued to invest the same percentage of her income as it increased over time.
“Tina, could I ask you a personal question?” Caitlin said, as she sat beside her on the couch.
“Of course you can,” she replied, leaning across to put her book on the coffee table.
“I’ve sold my business, and I have about a million dollars. I want to invest it. But I’m worried this might not be the perfect time.
”Tina raised her eyebrows and asked, “What are you afraid of?”
“I’m worried,” said Caitlin, “that if the markets drop as soon as I invest it, I’ll take a big loss right away. This is a lot of money.”
Tina smiled. “Caitlin,” she said, “How much money do you think I have?”
“I’m guessing you have quite a bit.”
“Well, I invested 70 percent in a diversified stock index and 30 percent in bond market index. Today, it’s worth about $1 million.”
“Wow,” said Caitlin, “I didn’t know you had THAT much!”
“Yeah, it snowballed over time,” said Tina. “I kept adding money every month. Sometimes, it had good years. Other times it dropped. But I practiced what I call, ‘The Zen of investing.’ That means I ignore market news. Most of the time, I ignore my portfolio’s balance too.”
“OK, so I trust your experience, you’re the perfect person to ask,” said Caitlin. “Should I wait a few months before investing my million dollars?”
Tina didn’t answer. She leaned back in the couch, tilted her head and asked Caitlin a question instead.
“Caitlin, you know I’ve seen several different markets, right?”
“Sure,” Caitlin said, “I guess you have.”
“You also know that I added money every month, and I’ve stayed invested for 40 years, right?”
“Sure,” Caitlin said.