Pennies from heaven

By: Ken Jennings | Date: 8.01.2008 | Categories: Uncategorized

mcduck.JPGI was interviewed for a New York Times story a couple weekends back about the effects of sudden financial windfalls.

As is always the case, half an hour of nuanced discussion gets boiled down to this semi-literate-sounding punchline quote: “Put your money somewhere not idiotic and leave it alone as much as possible.”

Somebody directed me to this consumerism blog, which suggests that, as financial philosophies go, mine sounds pretty lame. I’d have to agree. But the blog goes on to point out some of their specific objections to putting millions of dollars in a savings account. Uh, yeah. The FDIC limits (which I actually pointed out to the Times freelancer but didn’t make the story) are the least of your problems if you think a savings account is the right place to put your new seven-figure check. The stock market has, on average, earned 10-11% annually since the 1920s–yes, that includes the Great Depression and every subsequent crash. If your savings account can match those returns, you need to tell me where you’re banking.

So a savings account doesn’t fall into my definition of “not idiotic.” That would be the opposite of “non idiotic,” assuming there’s some good word for that.

All I was trying to say is that allocation doesn’t matter so much. The big question, to me, is not whether you’re going to choose index funds, mutual funds, a 70-30 stock/bond mix, a 60-40 stock/bond mix, or whatever. If you’re a financial wonk, that might fascinate you. If you’re not, like me, you probably just want the peace of mind that comes with a simple solution and someone you trust to help you manage it. By “not idiotic” is just meant “don’t put it all in your brother’s startup.” Or a savings account, I guess.

The bigger problems, as I see it, have to do with discipline and vision. First, are you going to blow through the windfall in ways you’ll regret later, or can you leave it alone until you know exactly what you want the money to accomplish? And the obvious follow-up question: what do you want to accomplish? Society conditions us to see money as the end, but that’s not true at all, unless you’re a coin collector. Money is the means. The end might be a charitable foundation, or a steady income stream so you can work less or retire early, or tuition to go back to school, or travel, or a new house, or a nest-egg, or whatever. That’s going to depend on you.

Actually, there are more crucial questions still, like making sure the money doesn’t change you for the worse–make you into a jerk, ruin your marriage, etc. And all the world religions I can think of agree on one thing: that heaven, should it exist, isn’t exactly going to be crammed with rich people. (No matter what the “prosperity gospel” idiots tell you.) But these questions seemed like they might be, well, a little beyond the scope of the Times article.