Do you have any brothers or sisters?
Here’s the story of Bob, Susan, and John, who are not only siblings but hard-working triplets who all just retired.
Besides their physical resemblance, the three have a lot in common. For instance, they:
Some of the investment and financial differences between the three are:
First, let’s look at Bob, who was born six minutes before Susan.
Bob is a do-it-yourselfer, which means he doesn’t pay anyone to manage his savings or investments (he likes to remind his siblings how it “all adds up”).
Bob doesn’t like risky investments, but he’s not overly conservative.
Based on information from the financial television shows he watches, and the articles he reads, Bob’s constantly on alert and, anticipating trends, jumps in and out of the market.
Still, he’s a good, consistent saver, and so he’s put 15% of his income away for 20 years.
Next comes Susan, who was born five minutes before John (she calls him “my bigger, younger brother.”)
An amateur painter, sculptor, and carpenter, Susan knows herself well and understands that she’s more creative than her siblings. In her travels and day-to-day life, she tends to make “interesting” decisions over carefully crafted ones. So, knowing this about herself, she made it her top priority to only work with an advisor who helped her stay focused on her goals, consistently reminded her to “keep doing what you’re doing,” and kept her from jumping in and out of the market.
But while her savings are well diversified, her advisor, a man who also worked with their father, charged her a reasonable annual fee.
Susan invests 10% of her income and has for 30 years.
As for John, he’s the group’s perfectionist. He’s obsessed with having the “very best portfolio” he can create. He even took some economics classes at a local college and has complete confidence in his ability to choose securities.
John loves to tease his siblings about how good he is at picking stocks that eventually become winners, but his problem, one he usually doesn’t mention, is that while he often identifies stocks early-on that perform well over time, he doesn’t always have the patience to stick with them.
John works with an advisor who doesn’t charge a lot but doesn’t advise him against making lots of changes to his portfolio.
John has always believed that, because he knew what he was doing, he only needed to save for 15 years (though he did save a comparatively excellent 20% of his yearly income).
When we factor in asset allocation, security selection, fees, time horizon, amount contributed, and the “sticking with it” factor, who do you think fared the best of the three?
Susan came in 1st.
Susan contributed the very least amount every year, but she did it for 30 years.
| Bob | Susan | John | |
| Asset allocation | 6% | 7% | 8% |
| Security allocation | 1% | 0% | 2% |
| Fees | 0% | -1.5% | -1% |
| "Sticking with it" | -2% | 0% | -4% |
| Total | 5% | 5.5% | 5% |
She also performed better than Bob or John by 0.5% per year even though she started out with the lowest return.
Her asset allocation was just above average and, in accordance with her wishes, her investment selection was conservative.
She did the best even though she also paid the most in fees.
Bob came in 2nd.
Bob contributed less than John but did so for five extra years. His security selection and asset allocation were good, and he saved a little money by not hiring an advisor, but he made adverse changes to his portfolio at least once a year, emotionally jumping in and out of the market, often at the worst possible time.
His overconfidence and attentiveness did not help in the end as he wasn’t able to stick with a strategy year after year.
John, the youngest, came in last. He was more confident even than Bob, and he felt great about paying lower fees than Susan. His performance would likely have been the very best had his advisor coached him away from regularly selling low and buying high. He also thought that because he was contributing more than the others, that he wouldn’t need as much time for his superior portfolio to compound.
While a simplified example of investing, the five lessons here are things we see every single day. They are: