Money Magazine Profiles Couple Who Fear Investing in Stocks
20 August 2006Here’s a classic example from Money Magazine of the Mattress Stuffer personality. The Kerkbashians have an irrational fear that a terrorist incident is going to hurt the stock market – so they keep all their money locked away in savings accounts:
Concerned about a housing bubble, the Kerkbashians sold their home in Northern California last fall and moved with daughter Grace, 2, to a Twin Cities suburb near Kim’s family.
But they didn’t buy – instead, they rent a two-bedroom apartment and keep the bulk of their assets, over $400,000, in savings accounts.
Gil, 40, a mortgage broker, explains that although he didn’t lose much in the last bear market, the terror attacks and subsequent economic downturn have left him wary of stocks. “I’m worried that we’re going to get hit again,” he says, “and I don’t want to get my clock cleaned.”
There’s a lot wrong here – caution can be a bad thing, and in this case it’s been taken to an extreme. They won’t buy a house, even though it’s generally always a good idea, because they’re worried about a housing bubble – something that isn’t very likely up in Minnesota. The Kerkbashians are projecting their fears about the California housing market onto a place that didn’t experience the rapid gains in prices that California did. And worst of all, they’re letting a fear of a stock market collapse stop them from investing – even though September 11th itself only caused a temporary dip in the markets. Mattress Stuffers need to understand that the market goes both up and down! If you own stocks, at some point in your life you’re going to own them during a market crash. But the Kerkbashians did the exact worst possible thing to do in a bear market – they sold their stocks. If you don’t sell, you haven’t lost any money – and they’re in their early fourties and have twenty years left until retirement. What are the chances that the stock market will be lower in twenty years than it is today? Zero if history is any guide – and if the stock market does go down and stay down for twenty years, chances are they aren’t going to be able to retire anyway – because the only way that happens is if we end up in some Mad Max post-apocalyptic world. If terrorists nuke a bunch of major U.S. cities, then the stock market could go down and stay down – but how likely is it that those savings accounts are going to be safe if the banks that hold their money get blown up?
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