It's Not What You Make; It's What You Keep

William B's comment reminded me of the aphorism: It's not what you make; it's what you keep. It's something that we tell our kids.

When Mark and I were just starting out, we had no money. Buying land, building (ourselves) our home seemed like gigantic stretches. They were. I can remember laying awake at night fretting about the money. We were definitely over the line, but we managed our way through it. Fortunately, my income grew quickly enough (as we knew that it would) to close the gap. My husband was in an industry (electrical contracting) that was subject to the vagaries of the economy. And the economy in 1981-1983 was not very kind. As we planned our home and the size mortgage we felt that we could handle, it had to always be with the consideration that MY salary had to be able to cover it.

Once the employment picture for my husband improved (and at the time, he earned almost double what I earned), we felt like we had died and gone to heaven! Because we were already living off of the shoestring of my post- college first job (public accounting) salary, we were ablet to save most of his paycheck. It allowed us to pay off the land loan (we purchased 6.5 acres which was owner financed). We also bought a television and a microwave!

However, outside of my deferred savings, I cannot say that we were the best savers. We probably should have bought used cars rather than new cars--though I should add that we drove those new vehicles until there was not an ounce of life left in them!

I don't want to lose the point, which I know that I'm doing reminiscing about the past. As we counsel our children, it is what you keep, not what you make that matters. My daughter is a good saver. Sadly, she inherited from me this OCD work ethic. She works, goes to school and saves. She "gets" it.

My son, though, does not. Money in his hand or pocket is restless. It nags incessantly that it must be spent on any of the magpie items that appeal to a 17 year old boy interested in video games and motorcycles.

But this aphorism extends to our investments. It's not what you earn, it is what you keep. The lavish returns before 2000-2001 were nothing short of delirium inducing. But coming out of market rocket return delirium was akin to coming out of a drunken stupor and finding yourself naked on a stranger's lawn.

I'm of the belief--and I recognize that this is MY bias--that the plain-vanilla advice of "investing for the long term" is designed for money management professionals to gain the most fee for the least amount of work. However, to be fair, for individuals to gain enough confidence to do this for themselves is not something that comes easily for most people. And, expensive mistakes can be made. So perhaps the pablum of investing for the long term produces results that are no less attractive than an inexperienced investor turned loose on the market. Further, the "investing for the long term" also assuages the pangs of "where did my money go" for investors.

In the end, then, it is the differentiation between active investors and passive investors. And there are some wonderful success stories of long term term, passive investors that allow investment professionals to hand out this "advice" without fear of being tarred and feathered. Nevertheless, I'm forever reminded--no, HAUNTED--by the paper my friend, Russell, shared with this blog: Irrational Optimism. So much of the "industry's" advice is based on a time slice of data that is country (US) and time specific. Again, just look at the Japanese market. If one listened to the standard fare advice, one would have just a 1/3 of their investment--even some 20 years later. I guess that the severe deflation that accompanied the market tumbled numbed the pain a bit.

Protect your capital. There are always opportunities; never be fearful of missing them--you have only yourself to present performance to. It is not what you earn but what you keep. And when probabilities are in your favor, act.