Shakespeare on Finance- Part Four

For centuries, people have studied Shakespeare for his wit and his wisdom. For the past few months, I’ve been sharing some of that wisdom in a new series of blogs called:

Shakespeare on Finance

Shakespeare never actually wrote about finance, of course. But I’ve found many of his lines contain important financial lessons. This month, let’s look at one such line from one of the first poems Shakespeare ever published:

Quote #4:

“Foul-cankering rust the hidden treasure frets, but gold that’s put to use more gold begets.”

Venus and Adonis

Imagine a heap of gold coins hidden in some lightless, underground vault, protected by a maze of labrynthine tunnels, booby traps, and a fire-breathing dragon.

Seems pretty safe, doesn’t it?

But as the gold lies in disuse, it slowly begins to rust. Finally, after a decade, the owner comes to withdraw the gold. He takes it to the marketplace, only for merchant after merchant to turn him away.

To his horror, the owner realizes his gold has lost far more than its shine. The gold has also lost its value.
According to a survey by Gallup, 65% of American adults reported owning stocks back in 2007.1

Then the financial crisis hit. The recession followed soon after. And the S&P 500 dropped 38% in 2008 alone.2

Now, fast forward to today. Per Gallup, only 52% of Americans report owning stock.1 In fact, that number has declined almost every year for the last ten years.

It’s not hard to understand why this is. So many Americans were burned by the financial crisis. So many saw the value of their retirement accounts plummet. It’s only natural that many people – almost half the country – would prefer to keep their hard-earned money out of the markets. Maybe they can’t hide it behind a fire-breathing dragon, but at least it feels safer.

But here’s the problem

Read the second half of that Shakespeare quote again: “…gold that’s put to use more gold begets.”

As the number of American investors has dropped, the value of the stock market has gone up. We’re now over eight years into the longest bull market in history – one in which many Americans have missed out.

Talk about gold begetting gold.

The sad truth is that for many Americans, their “treasure” has been left to rust. But those who put their “gold” to use have likely seen it beget more over the last decade.

Now, before we go any further, it’s important to note that I am NOT saying you should go out and put all your money into stocks. In truth, I’m not giving any investment advice at all. I would never do that in a letter. Investment decisions should always be made after careful deliberation, and there’s no good “one size fits all” approach to investing.

Here’s what I am saying:

After the last bear market ended, many Americans made an emotional decision to hide their treasure, fearful of further losses. The key word here is “emotional.” Emotion, as the saying goes, is a good servant but a bad master, especially when it comes to making investment decisions. Too often it leads to “buying high and selling low” when the opposite is what everyone hopes for.

Fact is, every financial decision we make involves risk. Even deciding not to do something can be risky; in this case, the risk of missing out on opportunities.

That’s why it’s so important to have a plan. A plan for reaching your financial goals. A plan for putting your money to work instead of burying it under a mattress. It’s the best way to take emotion out of the equation. The best way to grow and manage risk.

So the next time you have to make a financial decision, ask yourself: are you making an emotional decision, or one based on a long-term plan? Are you hiding your treasure, or putting it to work?

Is your gold more valuable when hidden…or when it’s out there begetting more?
In a future blog, we’ll move back to Shakespeare’s plays by examining a line from Othello. Have a great day!
Sincerely,

1 “Just over half of Americans own stocks, matching record low,” Gallup, April 20, 2016. http://news.gallup.com/poll/190883/half-americans-own-stocks-matching-re...

2 Myles Udland, “The Dow just hit 20,000, but half of America missed out,” Yahoo! Finance, January 25, 2017. https://finance.yahoo.com/news/the-dow-just-hit-20000-but-half-of-americ...