The Choice is Yours
Do you want safety or security?
Good morning,
One of my favorite quotes comes from Thomas Sowell,
“There are no solutions. There are only trade-offs.”
And this applies to my work in personal financial planning.
And with your financial decision making.
I’ve written about trade-offs before:
And today I’d like to revisit this idea of trade-offs specifically in the context of “safety” and “security.”
Your safety and your security.
Safety is defined as “the condition of being protected from or unlikely to cause danger, risk, or injury.”
While security’s definition is “the state of being free from danger or threat.”
These 2 words are close enough in meaning that you might consider them synonymous.
Or use them interchangeably.
But I think there’s a key difference between these words that will impact your ability to retire with clarity, confidence, and comfort… or not.
Examples of safety-seeking based on the recent questions clients have asked me include:
What if we just went to cash (or buy gold, or put everything in short-term Treasuries paying 5%, or virtually anything except stick with our long-term investment strategy)?
Shouldn’t we be doing something different? Anything but waiting impatiently for the capital markets to do what we expect over time?
I know we’ve been planning for the past 5+ years for me to retire in 2024, but maybe I should wait. What with the market uncertainty and all…
Shouldn’t we be doing what my [neighbor, coworker, family member, friend] is doing?
You’re looking for a “solution” but in the words of Thomas Sowell, there are only trade-offs.
For each idea above that feels safe and offers some potential short-term relief from your anxiety and worries about the world we’re living in, they come at a cost.
And that cost (or trade-off) is your long-term security.
Sure, maybe this is just wordplay on my part, but the idea of financial independence or freedom comes up a lot with my clients as an underlying motivation for working on their financial planning in the first place.
And “security” offers its own sense of freedom… freedom from danger or threat (see the definition above).
Whereas safety merely makes danger “unlikely.”
I’ve been doing this for 30 years.
I’ve had all these conversations (and many, many others) before and fully expect to have them again and again in the future.
That’s OK.
I’m not guilt-tripping or shaming you for being worried about your hard-earned money. Or the lifestyle to which you’ve become accustomed.
But I do insist you recognize the inevitable trade-offs underlying every decision you make in life, whether it’s with your money or elsewhere.
Your real financial enemy is inflation.
No, inflation isn’t your only enemy, but it’s the one that’s always there, chipping away at the purchasing power of your money over years and years.
It might feel like enemy #1 is market/portfolio volatility or the latest news headlines or the next election.
Actually, I know it feels like that’s what it is.
But if you attempt to soothe your short-term worries while simultaneously - and unintentionally - endangering your long-term security, well… I’m here to prevent that from happening.
It’s not only my job, it’s my responsibility.
If inflation returns to its long-term average of around 3%, your cost of living will double over a 25 year retirement.
If inflation trends higher and/or you live longer, you’ll need even more of the long-term return offered by diversified stocks to maintain your lifestyle.
But in order to capture long-term returns, you have to be in it for the long-term. Obvious, I know, but it bears restating the obvious from time to time.
And while I’m primarily talking about long-term investing, this also applies to every other area of your life, financial and otherwise.
There’s a trade-off to eating one thing vs another.
There’s a trade-off to exercising vs binge-watching Netflix from the comfort of your couch.
There’s a trade-off to time spent at work vs time with your family and friends.
And when it comes to your money, there’s a trade-off to what feels comfortable and “safe” vs what’s actually the best financial decision for a secure and confident lifestyle over the rest of your life.
If you agree that inflation is our chief concern, why would we do anything to reduce - or eliminate - our best chance of staying ahead of it over the rest of your life?
I don’t think we would, would we?
Call it safety, call it security, or call it something else.
I simply want you to live your best life.
For the rest of your life.
Full stop.
Links & Things
Many of you have expressed concerns about aging parents or other loved ones. Among these concerns is how best to deal with their home once their ready to downsize or move to a care facility. With this in mind, I’d like to introduce you to my friend Melanie Stevens who helped me write this recent article:
I’ve written about and mentioned Mint.com many times over the years, most recently just a few weeks back. So imagine my surprise when on Halloween last week, Mint announced it’s shutting down. If you’re using Mint or have used it in the past, here are a couple of good alternatives for your consideration:
Tiller (paid)
Monarch Money (paid)
Yodlee Money (free)
Call me lazy, but why would you work any harder at something than you have to? With this in mind, I suggest you read the following. It applies perfectly to your financial planning, your investing, and your life:
Thank You!
I’m glad you’re here. And I’m grateful to have you as a reader.
If you have any questions or an idea for a future email letter, blog post, or YouTube video, I'd love your input.
Or if you just want to say hi 👋
Simply hit reply - I read (and genuinely appreciate) each and every message you send.
Until next Wednesday,
Russ