Jack Frost nipping at your nose should remind us Bostonians that we could get walloped with a snowstorm at any time. A financial storm may come with less notice, so this winter investors should prepare for both.
Every time I visit Tony LaMonica’s TMX Boxing Academy in Quincy I am reminded of a real doosey of a storm, The Blizzard of ’78. The gym offers a challenging workout with motivating instructors, but as a writer I frequently get lost in my thoughts. First of all, the gym space occupies a former CVS where my stunning friend Erin used to work. Before that, it housed the Shop-n-Save Supermarket that I walked to with my brother Frankie during the blizzard’s aftermath.
Those mischievous trips full of noogies, snowballs and other brotherly antics were fun. Actually, after 3 days of eating Wheaties with powdered milk, I would have walked from Braintree to Worcester for the real thing. Our tomfoolery continued at the store, and we had a shopping cart demolition derby before the store manager chewed us out. He was familiar with us. Frankie relented, did the shopping and I picked out the cereal. I lingered for a while, carefully weighed my options. My thoughts were interrupted by Frankie commanding “Christopher, let’s get moving!” I grabbed some Capt’n Crunch and off we went.
It was the last time I recall Bostonians unprepared for a blizzard. Today, a snowflake spreads hysteria and people cram the supermarkets. I’d like to see Bostonians use the same urgency to create an emergency fund.
An emergency fund kept in the bank could be one of the best investment decisions you ever make. Take the case of Joe Buyhighselllow. He invested $200,000 in the S&P 500 October 1, 2007. That was near the market’s peak before the financial crisis hit. Joe luckily kept his job, but with a 5% pay cut. He struggled along but remained invested in the market throughout the crisis.
Then wouldn’t you know it, Murphy and his awful law appeared. Joe needed an emergency roof repair that cost $20,000. With no other choice, Joe withdrew $20,000 on March 1, 2009. That was near the market’s bottom. The market eventually recovered and Joe’s investments did well as of November 1, 2016.
As The Wicked Smart Investor, I’ll never say “I told you so”, but Joe could have done better. Using approximate numbers, let’s explore another approach. Say Joe invested $170,000 in October 2007 and left $30,000 in a bank. When the roof went, he tapped his savings account and left the investments alone. On November 1, 2016 his investment account approximate value would be $284,857, plus he’d have $10,000 of cash with a little interest. Doing things his way, Joe’s investment account would only be at $263,648. That is about a $31,000 difference and a lot less stress. While this represents an extreme case, emergency funds can protect you from selling in a down market and locking in your losses. As soon as you can, establish a stash of at least 3-6 months expenses, more if your circumstances require it.
It takes a while to accumulate this fund, but with discipline you’ll get there. That’s okay. My journey to Shop-n-Save had to start with the first step too.
I’m still thinking and working the heavy bag when I hear “Christopher, let’s get moving!” in a familiar fraternal tone. This time it isn’t Frankie, it is Tony drawing attention to the fact that everyone else is now doing pushups. It’s a good thing this celebrated Southie boxer didn’t give me a noogie too. I’d only figure out what happened next week.