Some investors may have cringed just a bit at the idea of an immutable lockbox. A lockbox clearly makes sense, but it’s a little boring. If you want investing to be fun and dream about the thrill of owning a 10-bagger stock (don’t worry if you don’t know what that means), by all means take a shot. But do so with only 5% to 15% of your savings in a “sandbox.” The sandbox is where you can have some responsible fun, make “bets” on individual stocks or sectors, and truly manage your own money.
In addition to being a bit more exciting than the “buy it and forget it” plan, the sandbox serves two extremely important functions:
- It is educational. A sandbox provides a reason to learn a lot more about investing. If you think that IBM might be a great buy right now, you are probably going to want to know how to value the company, whether it looks cheap or expensive on various metrics, how management is doing running the company, etc. Looking for answers to questions like these can be a hugely educational process that will make you into a more confident and informed investor better able to stick to a plan. You might find that you hate thinking about investing, and that is fine. Nothing is stopping you from investing your sandbox in ETFs or mutual funds, or closing it altogether. But you also might turn out to be one of those 2-3% of investors who are capable of consistently beating the market, and it would be a shame to let those talents go to waste.
- It provides a release valve for our impulse to trade more often than is healthy. As mentioned earlier, one of the reasons for a lockbox is that investors have a checkered history with the market. “Follow the herd” thinking has caused many to run headlong into technology stocks, commodities, housing, or even tulips (search for Dutch tulip mania), at the exact wrong time. But the lockbox is only going to be as strong as the will of the investor that created it. And there will come a time, no matter how strong the will, that every individual investor will see other people getting rich and want to jump into the fray, or will see his or her wealth disappearing and just want to sell everything. The sandbox lets you make a compromise with yourself-if you really think that “pets.com” is going to be the next Walmart, then by all means, put a little of your sandbox account into it, but don’t endanger your retirement by investing all of your assets in it.