The Safest Harbor
A decision that looked prudent, and what it actually cost.
"Staying out of the market cost me $4 million, but it saved me from a drawdown I couldn't have handled."
Meet Claire. She sold her company for $54 million, and when the money hit her bank account, she started watching the stock market for the perfect time to put it to work. She waited. And waited. And waited.
After we sold the company, we had more money than I had ever imagined was possible. I wasn't raised with money, and this was orders of magnitude more than I ever thought we'd have. It was going to take some time to get used to.
I also had no plan for it. During the sale I was working 90-hour weeks, essentially doing two jobs: running the company while also trying to sell it. That left me zero time to plan for what to do with the money if and when the sale actually happened.
When the company finally sold and the money landed in our bank account, the stock market was hitting record highs. I was sure a correction was coming, and if the market dropped 30 percent after I put the money in, it would have been a catastrophe for my psyche. So I watched and waited as the market kept hitting all-time highs.
That hesitation cost me $4 million in appreciation. But rushing that kind of money into the market with no plan and no time to adjust to the new wealth, then watching it drop? I knew deep down what that would have done to me, and it wouldn't have been pretty. The rational side of my brain knew the math. The emotional side needed time.
Luckily, I did do something with it. I put the money into a diversified government bond ETF. No chance of the kind of drawdown the stock market could have handed me, and it was paying me 5.4 percent interest.
The bonds weren't really an investment. They were a waiting room. The money stayed safe, the interest outpaced inflation, and I got used to being wealthy. I figured out what the money was for and put a financial and life plan in place so I could move the money into the market on purpose instead of in a panic.
If the money shows up before the plan does, don't force yourself to become an investor overnight. Find the safest harbor for the money (for me, that was government bonds), park it there, and let your mind quiet. The market will still be there when you're ready. Yes, my waiting cost me $4 million in lost appreciation. It was worth every dollar to avoid the drawdown I couldn't have handled.
Up next · Lesson 03 There's No Such Thing The pitch that sounded too good, and the detail that gave it away. Read next →