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Do You Want to Gamble with Your Nest Egg?

If you ever visit Las Vegas, you may hear the legend of the Man in the Green Bathrobe. While it’s probably just local lore, it makes critical points about retirement planning.

A man and wife were visiting the popular strip on their honeymoon. After losing most of their money, they kept a $5 poker chip as a souvenir. On their last night, the man wakes up at 4:17am and notices their poker chip also has the number 17. It must be an omen. With no time to get dressed, he throws on a green bathrobe and quickly heads downstairs to the casino.

He runs to the first roulette wheel and puts the $5 chip on #17 – and turns it into $180! He puts his winnings on another number and scores again – he’s now up to $6,300. He takes that money and bets it all on another number. Lady Luck smiles on the wheel again and his winnings are turned to over $220,000. He lays that money on another number – wins again – and now has over $7.7 million. With such an obvious winning streak going, he tries one more time with his entire winnings, but this time luck runs out. He loses the entire $7.7 million.

The man, dejected, returns to his hotel room. His wife awakens and asks, “Honey, where were you?”

“I went to play roulette.”

“Well, how did you do?” she eagerly asks.

“Not bad. I lost five bucks.”

It’s a funny tale, but it makes two serious points about financial planning. First, any money you “win” in the market shouldn’t be thought of as free money. The man could have walked away with $7.7 million and called it a night. Just because he started with $5 doesn’t mean that’s the amount he’s risking on each spin of the wheel.

In a similar way, as your retirement account grows over time, you’re putting more money at risk each year – mistakes can be costly. On a $100 investment, a 20% mistake is only $20. On a million-dollar portfolio, that same mistake is $200,000. The stakes grow as you near retirement, and that means you must be increasingly careful with each passing year.

The second point is that it only takes one mistake to lose it all – or at least a significant portion. In July 2018, Facebook lost 25% of its value in a single day, wiping out $120 billion in value. From October 2007 to March 2009, the overall market lost 55% of its value during the financial crisis. These aren’t the first times we’ve seen dramatic drops. They won’t be the last.

At Wealth Analytics, our professional money managers will show how to adjust your sails as your portfolio grows, market conditions change – and retirement nears. If you’re not making changes, you’re gambling and guessing, and that puts your portfolio one mistake away from leaving you with nothing but a green bathrobe.

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