It’s funny how your luggage evolves over the years.
I remember when I was in college, I’d go somewhere for the weekend and wouldn’t even bother with luggage. Just throw a couple of pairs of underwear in the backseat, along with an extra shirt and pair of jeans, and all is well. If I really wanted to get fancy, I might use a grocery bag.
Then, as I came to accept the fact that I was considered an adult by most objective standards, I actually started using a bag of some sort. Still nothing fancy, but it technically qualified as luggage.
When we got married, my parents bought us one of those luggage sets with the three matching bags of various sizes that all fit inside of each other like Russian nesting dolls.
Now when we travel, it looks like the Ringling Brothers have started using Southwest Airlines to move the circus from town to town.
Lilly ends up with a few bags, half of them filled with books, toys and stuffed animals. Amos usually gets a couple of bags to accommodate the diapers and piles of inevitable changes of clothes. Molly and I sometimes try to get all of our stuff in one bag, but that can be a challenge.
And then we each get a carry-on. Or as Jeff Foxworthy says, “Momma gets two carry-ons and I get to take whatever I can fit in my pockets.”
But our current luggage situation is a helpful illustration for how I like to construct a retirement plan.
1) Each bag has a job.
I don’t put my socks in the same bag as Lilly’s stuffed animals. (She might move them there by the end of the trip, but that’s never the original plan). I also don’t stick Molly’s curling iron in the same bag with my laptop.
There’s a bag for adult clothes, another bag for kids’ clothes. One bag for toiletries, another bag for laptop, iPad, chargers, etc.
The same thing needs to happen with your portfolio. Different accounts or different suitcases of money should have investments that are designed to accomplish a well-defined job for you.
2) Your most vital items should go in your carry-on in case your luggage gets temporarily lost.
Think about the things that you put in your carry-on bag. It’s usually limited to the stuff you want to have with you on the plane, and the stuff that you absolutely have to have for your first day of the trip. That way if your luggage gets lost, you at least have 24 hours to get it back before your week is ruined.
In the financial world, everybody has some money that they can’t afford to lose. And if you can’t afford to temporarily lose it, you should have it in your financial carry-on, or accounts with protection of principal. But just like you can’t pack for an entire trip in your carry-on bag, you can’t overfund these accounts. Sure, it’s nice that the principal is protected, but there are other jobs that those accounts can’t accomplish for us.
3) When your luggage does get lost, they’ll get it back to you. Eventually.
It could take just a few hours, or it could take several days. But you’ll eventually get your luggage back. And if you fly often enough, you’re going to eventually experience lost luggage at some point.
Same thing with the market. If you invest in the market long enough, even if you’re invested conservatively, you’re going to take some hits. You’ll sometimes lose your financial luggage. But that’s ok, because you’ll get it back. Eventually. So if you packed your financial carry-on well enough, you don’t have to panic.
4) Neatly and strategically folded clothes allow you to fit a lot more in your suitcase.
If you just ball up your clothes and toss them in the suitcase, you won’t be able to get it zipped. But if they’re neatly folded (or tightly rolled up, as Molly prefers to do it) you should be able to fit in everything you need without much trouble.
I still don’t completely understand the physics of this. It’s all the same amount of fabric, right? But a haphazardly collected pile of clothes simply takes up more space than a strategically folded stack.
The problem I see with a lot of financial suitcases is that they haven’t been efficiently packed.
For instance, you might look over the mutual fund options in your 401k for 45 seconds before you go cross-eyed and then rashly pick a few funds that don’t seem to sound too bad. Then you have the account that you inherited from your parents and it’s still invested in the same things they invested in 16 years ago. And then there’s the 401k from your old job that you haven’t even looked at since you left that company.
This is the financial equivalent of taking a pile of clothes out of your dresser, dropping that pile in your suitcase, and hoping you have everything you need for your trip. The reality is that you’ll end up without a lot of financial tools that you do need, you will have packed a bunch of things that you don’t need, and, to add insult to injury, your financial clothes will be really wrinkled when you arrive at your destination.
So what’s the lesson here? First of all, don’t use a grocery bag in lieu of a suitcase. You’re better than that. Second, pay attention to the process next time you’re packing for a trip. You might learn a little bit about retirement planning.
It’s funny how your luggage evolves over the years.