The Four Little Pigs and Their Inheritance
The Four Little Pigs and Their Inheritance
by T. Claire Kest, CFP®, CAP®
Once upon a time, in the cozy community of Hogtown, four siblings - Sam, George, Tom, and Daphne – sadly lost their father, Bacon. He was a wise, hardworking pig known as a good provider and diligent saver. His four children had very distinct personalities, so when they each inherited $200,000, they had different ideas on how to use those resources.
Sam: The Impulsive Spender: Sam, the youngest brother, had always been a free spirit. Feeling stifled by the educational institution, he dropped out of Hogwarts College and chose to live in the moment. Working at the local trough factory, Sam spent evenings smoking corn husks with his friends and playing his favorite video game, Pork-nite. When he received his inheritance, Sam raced to the BMW dealership, blowing most of the money on the shiny red convertible, and had enough left to build a house made of straw.
George: The Cautious Planner: George, the middle brother, had always been the sensible one. As a dedicated teacher, he believed in education but, unfortunately, did not learn much about investing in the stock market, and he felt frightened that he would lose money. When he received his share of the inheritance, he decided to put most of the money into a savings account. George visited the Piggy Bank & Trust Company. The teller referred him to a broker who assessed his risk tolerance and financial goals. The broker recognized George's conservative approach and suggested an annuity to provide a guaranteed income stream, complementing his teacher's pension. George used some of his inheritance to move into a comfortable stick house.
Tom: The Ambitious Achiever: Tom, the eldest, had always been driven to succeed. His days as captain of the mud wrestling team gave him a lot of attention and admiration from his father and peers. His drive to be the best continued into maturity, and he decided to pursue a law career with great success. Now a partner at a prestigious firm, Tom felt the need to project a certain status to his community. So, with the inheritance, Tom decided to use the funds as a down payment on a million-dollar brick home.
Daphne: The Thoughtful Investor: Daphne was the only sister. Instead of making a hasty decision with the inheritance, she scheduled an appointment with a Certified Financial Planner. During their meeting, Daphne revealed that she had inherited not only wealth from her father, but also his diligence and had been a consistent saver since her first job. In addition to the $200,000 she received from her father, she had over $500,000 saved through her employer's retirement plan, Roth IRA, HSA, and brokerage account. Her new financial advisor asked about her history with money, goals, and future plans. They reviewed her cash flow and considered various scenarios and choices Daphne could make, including retiring early. Daphne decided to stay in the condo she had purchased a decade earlier. She knew her father would want her to enjoy some of the funds she received, so she made plans to take a vacation to Ham-sterdam. Her financial advisor then invested most of her inheritance for her long-term objectives.
The Wolf of Wall Street: A sly wolf from New York named Glutty heard about the prosperity of the pigs in Hogtown. Glutty first stopped at Sam's straw house and promised to double Sam's money within the year. Running low on funds and feeling desperate, Sam fell for the wolf's smooth talk and wrote the wolf a check for his remaining $50,000.
Next, the wolf went down the street to George's stick house. He showed George a glossy brochure with testimonials, graphs, and charts showing the success of others. Glutty recognized that George was more conservative, so he claimed the investment was risk-free and he guaranteed that he would not lose any money. George seriously considered the wolf's words, however he decided to go to Tom's house for a second opinion.
Glutty tagged along to the brother pig's house. Tom welcomed George inside and reluctantly listened to Glutty's pitch for a high-risk, high-reward investment. Glutty's smooth words were enticing, however when he suggested that he think about it, Glutty insisted that George and Tom take action quickly because there were only a few spots available in the investment opportunity. Tom remembered that urgency and the need to make a decision quickly was a red flag, so he asked the wolf to leave.
Finally, Glutty tried to get in touch with Daphne. He buzzed her condo intercom and attempted to lure her to open the door. But Daphne, armed with the knowledge from her discussions with her financial advisor, ignored the deceptive wolf.
The Moral of the Story: A disciplined approach to money management will make all the difference in the long-term outcome of your net worth. Those who do not work to earn money like Sam will likely not respect an inheritance and may be more susceptible to making mistakes and falling for the tactics of greedy wolves. But with discipline, you can build a sturdy financial house that will withstand any winds of change – or huffing and puffing from the wolves of Wall Street.