“My luck was so good, I could do no wrong …
I just kept on rollin’ and controllin’ them bones …” — from “When You’re Hot You’re Hot” as performed by Jerry Reed
A couple is honeymooning in Las Vegas. Late at night in their hotel room, the husband glances at a casino chip bearing the number “17.” He hurriedly heads downstairs alone with five dollars to place a bet on that number at the roulette wheel. It hits, and the 35-1 odds pay him handsomely.
The man continues to bet on the number “17” and wins repeatedly, and lets his winnings ride every time. Soon he has amassed millions. He wants to bet again, but the house cannot cover his next wager.
Undeterred, he cabs to another casino, one which agrees to cover his action. Again, he bets on “17.” Again, he wins. He now has something like $262 million. And he bets it all again in the same fashion. And loses everything.
When he returns to the hotel room, his bride inquires, “How’d it go?” And the hubbie replies, “Not bad. I lost five dollars.” Well, that’s true, but it doesn’t really tell the whole tale, does it? The husband lost money that could have secured his family’s financial future for generations. But he didn’t consider it a loss, because in his mind, the only portion of the money that was his was the original five dollars. The rest was “house money.” This story, which was recounted in “How Smart People Make Big Money Mistakes and How to Correct Them” by Gilovich and Belsky, reveals much about human nature and money.
I am not a psychologist, but it is common knowledge that folks treat money obtained from different sources in varying fashions. We work long and hard at our jobs and when we are paid for our labor, we are often conservative and careful with that income. But if we hit on a couple of lottery numbers, are bequeathed money from a relative in a will, or even enjoy a tax refund, we are much more likely to throw caution to the wind in the way we spend those dollars.
A family member of mine used to say, “If you receive an unexpected windfall, spend half and save half.” This homespun aphorism assumes that it’s natural to want to throw this kind of money away, and basically cautions us “not to blow it all.”
Here’s the rub with windfalls. All dollars are the same. Investments can compound, regardless of where they originated. What matters is what you do with the dollars. Unexpected cash injections, properly deployed, can grow in any investment account just like W-2 dollars. Spend some of that windfall, sure. But save and invest some, too.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor