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When talking about exotic places, I will jokingly mention, “I
have never been there, but I know how much it costs to get
there.” While the statement is not all that accurate, it does
give me an opportunity to bring up my oldest daughter and her new
husband’s year-long world tour. Not long after they were married
they sold all their worldly possessions, outfitted themselves with
REI equipment and, with the help of parents, purchased
round-the-world airline tickets.
Cheap modern airplane technology made their trip possible by
shrinking the size of the world. And cheap modern internet
technology allowed them to stay in touch by changing the shape of
the world. With the help of Susie (their Macintosh computer) we
were able to talk using Skype, write via email, and see pictures
on their personal website. However, it wasn’t until after they
returned that we discovered that parents got the filtered version
of their travels. The more harrowing events were relayed to
siblings and friends but were censored from communications with
worrying parents.
My favorite of these filtered stories occurred in Beijing. The
kids had just finished a tour of the Forbidden City and had exited
from the palace grounds into Tiananmen Square. The square was full
but, as a light shower grew in intensity, the crowd quickly
started dispersing. Having just experienced India’s monsoon
season, they didn’t think the rain was all that bad. Sarah was
convinced that it must be a bomb scare. Kyle suspected it was the
rain driving the people away. Whatever the cause, they eventually
were the only ones left in the vastness of Tiananmen Square. As
they stood there contemplating their options a police car made its
way across the square, stopping directly in front of them. In my
mind’s eye the scene of the car and the two solitary figures
flashes back and forth with the images we have all seen of the
lone man facing the tank. At this point, Sarah turned to Kyle and
said, “See! I told you it is a bomb scare.” Getting out of the
car the officer approached them, said something in Chinese, and
then, to their surprise, he handed them an umbrella, got back in
his car and drove off.
Sarah’s and Kyle’s trip was exciting, educational, and rewarding,
but there were occurrences far scarier than the one I described
where the dangers were real and the calls closer. But just like
there was no way for them to take their trip without taking risks,
so it is with my clients and their financial journeys.
To reduce exposing themselves to unnecessary risks, the kids got
the advice of experienced travelers. As an experienced financial
traveler, my advice is similar to Russ Wiles, of The Arizona
Republic, who wrote in a recent article titled Embrace Risk,
“Don't try to beat the market by picking individual stocks. Don't
try to time the market. Be skeptical of market and economic
predictions. Watch expenses.”
However, there was no way for the kids to experience the rewards
of Machu Picchu, Petra, the Great Wall, or the Pyramids without
accepting (and living with) some risk. As an adviser, I tell my
clients what Mr. Wiles wrote in his column, “Figure out how much
volatility you can live with; build a suitable portfolio using
low-cost, broadly diversified funds; then find something else to
occupy your time.”
I have numerous clients and each of them is on their own journey
to places where I have never been. But I do understand the basic
principles that every financial traveler needs to know in order to
prudently balance risk and reward. However, unlike my kids, I
won’t hide the risks from my clients. Even the best travel plans
cannot eliminate risks and guarantee success, but they can put the
odds in your favor.
Ely Prudent Portfolios, LLC is a fee-only investment
advisory service working with individuals in or near
retirement and non-profits. The firm is accepting new clients
with a minimum AUM of $1,000,000
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