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SUCCESS STORY OF THE MONTH! (Note: The details of these stories have been changed to maintain confidentiality, and some compilations are used to accomplish anonymity.) "More than anything else, I believe it’s our decisions, not the conditions of our lives, that determine destiny." ~ Anthony Robbins~
"Walter Perseveres Through Trials…" This month, we want to share a story with you about one of our favorite clients. Walter has been coming to us for a long time. He has always been very disciplined about saving, and had set up a really good retirement for himself and his wife Sally. Sadly, Sally passed away not long after Walter had retired; so he was faced with a future for one, and a financial plan he’d set up for two. Well, Walter being Walter, he went ahead with his plan. He kept the vacation home that he and Sally had built, and spent about half of the year there. He also volunteered for the Senior Corps and acted as a business consultant to people who are having problems in their small business. Walter had been a small business man himself, having owned a couple of restaurants. He was always active in the Chamber of Commerce, and many other community activities. When Walter met with us a couple years ago to go over his plan, he said that he had hooked up with a few other retirees in his area, and they were getting into investing in pre-construction real estate. He wanted to take some of his money, and do a little “flipping” on condos. He had always been very conservative, but now with Sally gone, and finding himself with a few extra bucks, he figured “what the hell”. Knowing how disciplined Walter was, we had no problem with him taking a little risk. Just to be safe, we warned him about the dangers of speculation in real estate, and how it is not even closely related to his past investing in long term, solid, diversified groups of equities. When Walter came in for his review last year, he was thrilled with his “flipping” transactions. He had followed the plan we had set up for him, but had taken far more money out of his “can’t touch”, safe, low risk investments to use for condo “flipping” than we had all agreed upon. He was very happy and excited. We weren’t. We tried to counsel Walter about him being in a sea he hadn’t sailed in before, and that the waves can crash over you without any warning. Walter said he appreciated our concern, but he was fine. At the beginning of the year, we were surprised when Walter didn’t make his usual January appointment to review his plan. We called him and scheduled an appointment, which Walter later called to cancel. This was totally unlike Walter. He had always kept right on top of these things. We finally got in touch with him, and at first he hemmed and hawed and made a lot of excuses about being really busy. We pushed hard to get him in here. When he finally came in, he broke down and told us he thinks he really screwed up. He was so thrilled with all the money he had made with his residential real estate buying and selling that he got a little cocky and virtually cleaned out his “can’t touch” accounts, and was “flipping” with that pool of money as well. |
While the real estate market kind of floated up for the most part in 2005, Walter took a big hit with two of his “can’t miss” real estate deals. It seems that he and his buddies bought 35% of a high end condo and home development with a golf course…and the main developer mismanaged his business and ended up losing the development back to the banks that did the financing. Then, another set of pre-construction condos they had all bought into just hit an unexpected wall of real estate prices freezing and even falling. Now they are stuck getting mortgages on 23 condos, that they don’t know if they’ll be able to sell at even break-even because the market has slowed down so much. Even worse! Walter was about to set up mortgages on his paid for homes so he could buy more properties to make up for the two bad deals. Man-oh-man, did we try to talk Walter out of THIS move. This could be his swan song if his new “Can’t miss” deals go south as well. We explained to Walter that we are not here to judge or scold him, but to help fix his problems. Unfortunately, Walter had literally lost over half of his money. 58% of his net worth from two years ago was gone. Probably forever. We completely re-did his financial plan, and had the burden of showing Walter that he was going to have to cut his lifestyle dramatically (assuming he didn’t risk losing even more money in real estate speculation) if he was going to have enough money to live through his expected life time. Walter was so sad. He said he felt even worse when he thought what Sally would have said if she’d been here with him. We told him not to dwell on what had occurred, and to look to the future. He could still live decently, even though he would not be able to have the freedom he had before the “flipping” nightmare. After all, no one could change the past. Walter now sees how he got caught up in the swirl of the real estate euphoria, (just like people did in the late 90’s with the stock market, and like they did in Holland in the 1600’s with “Tulip Fever”!) and he now knows he cannot allow himself to speculate on investing his life’s savings. He understands that a 40 year old losing 58% of his or her net worth is bad, but they have the time to make it up. But…a person in their late sixties has to be more prudent, and let logic dictate actions…instead of emotion. So, Walter is going to be OK. He feels better now, and isn’t beating himself up any more. We hope his story is instructive to you, so you can learn from Walter’s story…and realize you should NEVER speculate with money you CANNOT afford to lose! We don’t say not to speculate…only not to speculate with funds that won’t change your life if you lose them all -this story was submitted by John Glover of J.F. Capital Management Call 1-864-653-4090
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