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WOULDA, COULDA, SHOULDA are part of every retiree’s investment vocabulary. I’ve certainly had my share of bloopers.
Too often, we writers stand up here and pontificate about our exploits, leaving readers feeling they couldn’t possibly do the same. With an eye toward leveling the playing field, I thought I’d divulge two of my biggest blunders.
Error of commission. Using the royalties from her husband’s high school Spanish textbooks, my mother-in-law Rose began to accumulate municipal bonds in the late 1970s. It was an auspicious time. Interest rates peaked a few years later and, as they fell, bonds embarked on a multi-decade bull market. Rose reaped an unexpected capital gains windfall, in addition to a tax-free and relatively low-risk return.
The bonds proved a boon for us after Rose died, with the interest supplementing our income. To build up a reserve for a house down payment, and as diversification for our stock investments, Alberta and I left the bonds in an account overseen by Rose’s broker and let them mature one by one to avoid any selling costs.
Perhaps still flush with Alberta’s inheritance and cocky from eluding any further investment costs with the bonds, I proceeded to make a series of egregious misjudgments. In those days, I regularly hung out at a Charles Schwab investment center, where I heard that bond sales don’t incur a commission. To my chagrin, I subsequently discovered they sometimes do, and—if a commission isn’t charged—the bid received by a seller is marked down.
Unfathomably, I never questioned my fantasy that Rose’s full-service broker gave freebies to bond sellers. With the need for the house down payment approaching, I blithely sold all the bonds, not just the number necessary to fund it. In the process, I forfeited thousands of my wife’s dollars.
I realize now that, had I known about the selling expense, two alternatives were open to me. Given the overall size of the transactions, I could have asked for a discount, a request that brokerage firms occasionally grant. On top of that, I shouldn’t have felt beholden to Rose’s old firm. I could have transferred the bonds to Schwab, where presumably their liquidation would have been far cheaper.
Trial by fire. “Steve, the phone is ringing. It’s four in the morning. I hope your brother and Robin are okay.”
“Is this Steve Abramowitz?”
“Yes, it is.”
“You own the Victorian at 2015 21th Street?”
“Yes, I do.”
“This is the Sacramento Fire Department. You’ve had a three-alarm fire. The building is destroyed. It’s not habitable.”
“No one was in the building, right?”
“We think that’s the case. Who works there?’
“Thank God nobody was inside. Sixteen psychotherapists. I’ll need to call them so they can inform their patients and find a new office.”
“We recommend you call your insurance agent as soon as possible.”
“Sure, thank you.”
In need of support and guidance, I immediately called my brother Richard, a Fort Lauderdale attorney, and explained the situation. Although shaky and unsteady from the devastating news, I felt certain we were insured for fire. But I also realized I’d have no rental income and would soon be up against my fixed expenses, including mortgage payments and property tax.
My brother was concerned but calm. “Steve, look, I’m telling you, the cash won’t be a problem. You’ll have the loss-of-rents coverage until you get the big check for the fire damage. You’re okay. Just you and Alberta take care of yourselves.”
I got off the phone, feeling grateful and relieved. Later that morning, I called my insurance agent.
“Iris, hi, this is Steve Abramowitz.”
“Hi Steve, what do you need?”
“Iris, there was a terrible fire at 21st Street. It burned down. I’m covered, right?”
“Definitely.”
“Great. I’ll need some cash to tide me over. We need to get the ball rolling on loss-of-rents.”
“That shouldn’t be a problem. They’ll front some money to you on good faith. Give me a moment and I’ll check to see how much you’re covered for.”
“Sure.” I waited while Iris looked at my policy.
“Steve, you’re not covered for loss-of-rents. I checked in two places. I’m so sorry. I guess you never asked for it.”
I suspect my negligence in not securing loss-of-rents coverage had to do with my frustration with the legalese and ponderous requirements of owning real estate. I was chastened by my lapse. These days, I look over my insurance policies much more closely.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.
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I agree with the other commenters—bad job by your insurance agent. People don’t usually think about how important it is to have a good agent until they need one.
Hi DrLefty,
Thanks for understanding I wasn’t the only negligent one here. But I shouldn’t let myself completely off the hook. I was a willing accomplice. It reminds me about what my brother once told me. Going online for legal advice is fine—as long as you don’t get into any trouble! I’ve come to look forward to hearing from you.
Steve, have you ever considered putting these memories into a book or something where you could lay them out chronologically or in some other way? They are good stuff and I really enjoy them. Thanks!
Hi Nate
What a nice thing to say. I have a love-hate relationship with putting something like that together. As you have no doubt surmised, I can’t decide whether I’m a market observer or someone whose life experience is a story worthy of being told and possibly even helpful.
Then there’s always my bugaboo—I have started several books and finished none. I seem to have an easier time writing short pieces that are much less daunting and don’t require such a long delay in gratification. Nate, always glad to hear from you.
Agents typically carry errors and omissions insurance because they get sued for failing to mention coverages that would have protected the insured. I’m sorry this happened to you and glad you have a new agent. Unfortunately many I’ve met over the years aren’t very thorough and unless you know something about insurance the customer won’t catch their mistakes.
Hi Paula,
You’re right, I knew I was pretty clueless about the nuances of fire insurance and should have had someone far more knowledgable (like my brother!) review the coverage. I’m not very good at delegating and consider this a hard lesson learned. Nice to hear from you again.
I’m surprised your insurance agent didn’t proactively mention loss- of- rents insurance to you.
Hi Mike
You’re so right. Even though it is, of course, my signature and my responsibility, she was neglectful. I immediately changed agencies. Incidentally, the insurance company balked at settling because we hadn’t checked our fire alarm in the last 60 days (!), but we ultimately received a fair settlement. Thanks for your support.