Why You Should Learn From the Many Diverse People Around You
"The measure of a person,” says Mark Cover, “is not only how many people show up at his funeral, but how much variety there is in the group of people who show up.” The more variety, the richer the life.
“I’m not sure where I learned this,” he continues, “but somewhere in my twenties, I realized that I could learn from literally every single person I came into contact with. I think a lot of lives get short changed because many people don’t believe that.”
Related: Timeless Wisdom: The Golden Mean
Mark came from a rural farming community. Growing up, he had no idea what a real estate developer even was. No one would have ever predicted that he would become the CEO for a division of a multi-billion-dollar real estate development firm. He jokes that when he first graduated from college, all he had was a couple polyester suits, a smile, and debt. It is that humble beginning that taught him about the many opportunities available to someone with an open mind and a willingness to learn without preconceived judgments.
Although, at this point in this life, it would be easy for Mark to limit his contacts to business colleagues, investors and neighbors in his affluent neighborhood, he goes out of his way to cultivate relationships with diverse groups of people he wouldn’t typically run into in the normal course of a day. Every Sunday, he and his wife drive 35 minutes to a church that is in a neighborhood very different from their own. Sure, they could go to the church that is only a few minutes away. But, Mark doesn’t believe he can serve or learn as much close to home.
Parenting, Money and a Learner’s Permit
One group of people Mark has had the pleasure of learning from are private wealth holders. Because of his career, Mark has had the opportunity to meet the ultra affluent and financially savvy. And he’s observed what wealth can do to family dynamics. Inheriting great sums of money doesn’t always lead to more freedom. In fact, Mark says many second- or third-generation wealth holders are “frozen in fear.” They are afraid they will mismanage the money and ruin their family’s legacy.
“That’s why,” he says, “I’m a big believer in enabling young people with a sense of wonder, excitement and optimism for their personal opportunity and ability to accomplish things that matter to them.”
He also believes that parents must reflect respect for their children from an early age and that is how he raised his four children (now adults). Mark and his wife had a parenting philosophy in which they openly talked with their children, shared insights and wisdom and “always gave them a little more rope than they expected.” For example, in Texas, you can get a learner’s permit when you are 15. So, Mark says he pushed each one of his children to get their learner’s permit as close to their fifteenth birthday as possible. Lots of other parents were terrified to have their children start driving in the big city, but Mark has always viewed things from the other side. “It’s your life,” he says. “It’s short. Go out and grab it by the horns. As long as it doesn’t hurt yourself or someone else, go for it!”
How Much Risk Are You Taking in Your Retirement Plan?
If I asked you how much risk you are taking with the investments in your retirement plan, what would you say? My guess is nine out of ten people couldn't answer that question in a meaningful way. Answers like "A lot," "Just right," or "not much," may as well be "I have no clue."
We typically think of risk levels in terms of "risk tolerance." This is the appropriate portfolio risk that a person would be most comfortable taking with their investments. While investment advisors are required to assess your risk tolerance and you can measure it yourself on various internet sites, determining what risk you are comfortable with is more of an art than a science. It depends on the investment return you need to produce an acceptable retirement income and the asset allocation that will give you that return, and it is a delicate balance between emotions and financial reality.
When markets are rising, everyone is comfortable with their risk tolerance. I have known retirees who had their entire retirement portfolio in a handful of small company growth stocks—a powder keg of investment risk by any definition of risk. Yet they were entirely comfortable with that risk, because the stocks they were in "always went up." Anyone with a stock that "always goes up" either hasn't held the stock during a bear market or only looks at their brokerage statements once every five years.
To find out what comfort really means when it comes to risk tolerance, it helps to define "uncomfortable." While risk tolerance tests will ask you how far must your portfolio drop before you freak out and sell, the best way to find this out is when markets are in a free fall. If you stay in the markets long enough to see them turn around and rise again, your risk tolerance was probably comfortable. If you sell out, it’s a pretty good indication your risk tolerance was not as great as you or your advisor thought. Unfortunately, selling out at a market bottom is a very costly way to find out the risk you had in your portfolio was "uncomfortable."
If you have been investing for over 10 years, finding your risk tolerance may be simple.
- Think back to 2008-2009. Did you stay in the markets or get out?
- Look at old statements and find out what percentage of your investments was in equities (owning things) and what percentage was in fixed income investments (loaning money through CD’s, money markets, and bonds).
- Express this as a fraction with your equity percentage first and your bond percentage last. If you were 66% in equities and 34% in fixed income your asset allocation was 66/34.
- If you stayed in the markets, your allocation was probably "comfortable." If you got out, it was certainly "uncomfortable."
If your allocation was 70/30 and you stayed in the market, maintaining that allocation should serve you well. Maybe you could even increase the equity portion to 75/25 or 80/20 and still be comfortable.
Conversely, if your allocation was 70/30 and you sold out or reduced the percentage you held in equities, your allocation clearly offered an uncomfortably high level of risk. You will need to reduce the equities in your portfolio. This is especially true if you got back into your old allocation, or something even riskier, to "make up time." You may well be taking too much risk and setting yourself up for failure all over again. You will need to reassess your risk tolerance as if you were a new investor. Next week I'll suggest some ways you can do so.