Me: Before I start let me remind everyone so there’s no misunderstandings. e.g, A disclaimer. I am not doling out financial advice on what you should or should not do when it comes to your money and more. I’m speaking here using “big picture” style examples and ideas to get you to think. Nothing more. Although I believe we’re all adults here, in today’s world it bears repeating: For actionable legal or monetary advice – always seek accredited council where applicable. And lest I remind anyone: If it feels like you’re doing something risky, you probably are and need to think it through to its logical conclusion. So with that said let’s go.
My first example uses what many of you have seen countless times on TV and in commercials of one form or another by retirement funds and the like. i.e. What’s your number?
Your “number” is what you think or they’ll “tell you” how much you need to retire. For this example let’s use what seems like the most commonly referenced number: $1 million. Regardless if one thinks that’s too low or high is inconsequential for this thought experiment. It allows for easy math so this will be the mark.
Just a short 5 or so years ago it was considered not too shabby. Today? It’s worth far, far, less in more ways than one. Remember my example previously of receiving 5% annually? That $50K in annual interest income is gone. And to reiterate further, to keep it in a deposit fund at a major bank will now probably cost you. Along with your living expenses now must come directly from this savings depleting it in sizable amounts even further. And as we discussed earlier. This is just the first set of issues. There are more. So as of now this $1MM isn’t what it used to be. Literally. So if we apply thinking “Outside the Box” (OTB) how might we approach this?
Well, we could look for alternative investing vehicles or avenues to provide some form of yield or return. So maybe in OTB you decide to invest in different markets such as High Yield, Biotech which by the way currently are said to be “hot.” And you might say, “Put me into the big techs!” An example of this could be Apple™ and such. Then you might say, “Put me into Emerging Markets” because for what ever the reasons you hear they too are “hot.” Today it would seem if you did just that – you’d be far ahead. Fair enough.
But let me throw this wrench into this mix because you’ve seen it for yourselves. It’s not a fairy-tale…
Out of blue whether it be tomorrow, next week, next month, or next year a financial panic for whatever the reasons happens circa 2008 style. I use the word “style” because who knows how bad it could be. However, for right now let’s use just three examples that are all easily imaginable.
First: It’s only half as bad, and the market corrects down losing only 50% of what the plunge of 2008 was . Or: It falls equivalent in magnitude to the fall of 2008. And lastly – it’s far worse and corrects or falls surpassing the panic of 2008.
So let me set this up further…
There you are in what at first feels like proverbial “Easy St.” portion of life. You’re just getting used to the idea of this “retirement” thing or you’ve been on the “golf course of retirement” for some time when suddenly you hear a news report the markets have fallen “out of blue” some 2%.
As you become concerned you think to yourself, “That’s OK, it’ll come back, and being diversified has been part of my OTB strategy and should insulate me.” And the market continues falling. Now you look at the markets when the reports cross near daily and being down 2% conjures up feelings of “Thank the lord it’s only 2% today.”
As all this is happening you begin calling the 25-year-old “just out of MBA school” bank representative who convinced you to move your funds from a previous bank to theirs. All you get for responses fall into two categories: One – “Hi. This is Jimmy or Sallie your account specialist – I’m not at my desk so……” Or: You do get them on the line and you know instinctively they’re reading from a script. i.e., “There’s no need to panic, remember you’re a “long-term” investor, over the years investing……….” All the while you know both of these people are probably putting far more attention into resurrecting their resume as opposed to your account balances. And that’s just the bank. Calling your “broker” feels more in line with getting through to the DMV than anything else.
You keep telling yourself there’s “reason for concern – but not panic” as you now seem interested in one thing and one thing only: “What level is the market at now?”
You begin watching the financial media far more intensely when suddenly you realize that feeling within your gut you couldn’t put a finger on meant now becomes near crystal clear, “These people have no clue!” (Remember the recommendation that Bear Stearns™ was safe right before it collapsed? Need I say more?)
You watch one famous so-called “expert” after another give advice to buy, hold, whatever and all the markets keep doing – is falling. Sometimes the fall or “drops” warrant “historic” prefixes as they are blurted out across the media.
You’ve done the proverbial OTB thinking and applied what you thought were “reasonable” parameters to help ensure you against another calamity. You’ve allocated yourself into differing funds, levered against this one, reduced exposure to that one, etc. When it comes to OTB thinking you feel you’ve done far more “thinking” than most. But now it seems all that is happening concerning a “box” is boxing you into a corner with an uneasy realization that all this “Easy St.” living might be anything but.
Maybe you’re one of those that feels all this doesn’t relate to you because “you’re in a pension” of some sorts: only to realize during the worst of these near daily sell offs the subject that seems to be coming up more and more by the talking heads on all the media channels is just how much “damage” and possible “unable to meet current recipients allocated payments” becomes the topic de jure leaving you stupefied as to where this all ends – and just how you’ll deal with its aftermath.
Suddenly it appears anything you thought previous as “safe” is now questionable at the least. And, in dire straights, at its worst.
What I’ve just outlined is not based in fiction. This is what transpired for many during the initial downturn, and as it gained speed in 2008. As I alluded earlier OTB thinking in nearly all its forms has done nothing to help alleviate your concerns. So now let’s move from OTB to “There is no box.” (TINB) And what do I mean by that exactly? Easy – let’s discuss the “box” known as retirement and shift from how to defend or insulate the “box.” to: there is no retirement.
Now that’s a loaded statement. But what I want to express or better yet articulate is just how you can either retire today or work towards retirement in such a way that if we are ever to relive what transpired just a few years ago, you may in fact become even more confident and reassured that you will not only be better prepared to handle the turmoil, but in fact maybe, just maybe, even prosper. Yet, it takes not OTB thinking to get there, but rather, the viewpoint of TINB to begin with. And why it’s quite possibly the most relevant and important concept you’ll leave here with today.
© 2015 Mark St.Cyr