My best friend inherited $100,000 when we were in college over 10 years ago. He blew through the money quickly and ended up with nothing to show for it. A couple of years ago, he received a 2nd inheritance of ~$160,000 and swore not to make the same mistakes. He immediately worked with a financial planner, investing $100,000 and depositing the remainder into a savings account.
During our conversations over the past couple of years, I got the impression that he was slowly spending the money in his savings account. Since he is in between jobs and will not likely receive another inheritance, I was worried, but knew that he at least had the $100K invested in a diversified portfolio. Whenever we spoke about money, I reminded him that, if he leaves his investments alone, he will be set when he retires.
Last week, he called to let me know after the Dow plummeted, he freaked out and pulled all of the money out of his investments. I explained to him that it was only a paper loss until he pulled the money out and that with his timeframe to retirement (25-30 years) it doesn’t matter what the market does short term.
It’s tough to see a good friend make such a huge mistake. I’m half convinced that he is going to deposit the money into his savings account and slowly bleed it dry. Because he’s like family, I’ve got to talk some sense into him. I’m going to call him back this week to encourage him to reinvest the money and leave it alone (no matter what the market does short term).