By Brad Thomason, CPA 


Recently I saw a TV commercial in which a seller of silver coins was arguing the case that silver is a good investment.  Spoiler alert:  I’m not going to take a position on whether it is or isn’t.
 
I’m bringing it up because of something that was said in the commercial.
 
They lead with the “fact” that experts were saying that silver could go up by as much as 200%.
 
Now I’m not a fan of statements of this type, but I generally tend to respond to them with an eye roll.  They are at base fairly innocuous, on account of the fact that they are meaningless; and I think that’s pretty obvious to most people.  Could they have found someone who said silver might go up by 200% in the future?  Sure.  For that matter, had they asked me, I would have said it.  Because it might.  I’m not aware of any reason that would make it impossible for it to happen.  Doesn’t mean I think it will.  But it could.  Especially if your conceptualization of “the future” encompasses enough years.  A nonspecific statement that something could happen is not a statement that it will happen.  In fact, such a statement   isn’t really much of anything at all.
 
So that wasn’t the problem.
 
Later, they had a recognizable spokesman come on screen to sing the praises of silver, and say that he liked it.
 
Didn’t have an issue with that either.  People who really do believe in some particular financial instrument or product aren’t obligated to keep their mouths shut about it.  Even if they stand to make money from it.  The folks who make and sell Subarus really do think their cars are particularly safe, and they have never been shy about saying so.  Obviously they make money when you buy a Subaru, either because the safety story is appealing to you, or something else causes you to make the purchase.  Doesn’t strike me that they have done anything wrong at all by saying nice things about something they sell. 
 
Not everyone lies because it would be in their financial interest to do so.  In my experience, it is far more common for people to decide to sell something because they believe in it, rather than “believe in it” because they sell it.  Even if the latter version certainly does happen with regularity.  I tend to give people the benefit of the doubt, absent overwhelming evidence to the contrary.  Which is how I would like for other people to treat me. 
 
So that wasn’t the problem, either.
 
The problem was the last thing the spokesman said.  Something to the effect that not buying silver could end up being the worst financial mistake you ever made.
 
What a patently ridiculous thing to say.
 
Spend even just a moment picking that apart.  Missing out on a possible (but highly speculative) return on a nontraditional asset which would, at most, make up maybe 5% to 10% of your total savings (probably less) is going to be the worst thing to ever happen in your financial life?  Come on.
 
I can think of a long list of things which are both more likely to happen and would have a bigger negative impact.  I’ll share a few in just a second to prove the point.
 
Rate of return is the flashy variable in the investment and capital growth equation.  It’s the most fun to talk about (i.e. brag about), it’s the easiest to get preoccupied with, it’s the one that tends to spark the most feelings of regret when we miss out on it.  But just because it is the loudmouth of the bunch, doesn’t necessarily make it the most important.
 
Big returns are great when they happen.  No one I have ever met is opposed to them – when they actually occur.  That’s why they make such good advertising fodder.  Otherwise sensible people can be easily distracted from all of the other important parts of the exercise when the prospect of missing out on a juicy windfall is put onto the table.
 
Don’t get me wrong:  you need returns.  Over time, most people even need some pretty good ones now and again.  But in the final analysis, if the success or failure of your plan comes down to one particular investment (whether it’s a big loser or a big winner), that’s an indicator that it was an unbalanced plan to begin with. 
 
Obviously not getting a return will have a mathematical impact on your balances.  But even if you do pick up that eye-popping 200%  - on what, 3% of your capital? – then the net effect is the equivalent of one year of your whole portfolio earning about what it should have earned anyway:  200% x 3% = 6%.  If not earning 6% in one year of your decades-long retirement management process is the worst thing that ever happens, then you my friend, have dodge many, many bullets.  Good for you; but don’t plan on it.
 
The kinds of things that are more likely to do substantial damage in real-life cases are much more boring.  It’s usually stuff that gets neglected year after year, and the damage builds, cumulative effect style, without even realizing it. 
 
Maybe you let money just languish in between investments, not completing the compounding cycle, or staying in cash because you are too busy planning a trip or re-sodding your yard to have time to mess with it. 
 
Maybe you end up getting hit with a medical expense which you knew for years you should have insured yourself against, but never did. 
 
Perhaps you allow yourself to get talked into making an “investment” into some really goofy thing a friend or family member wants to try, and even though you know it’s a bad idea, you agree out of some sense of wanting to be supportive. 
 
Or what about this all-too-common one:  leaving your money exposed to substantial investment risk past the point that you need it to grow.  In other words, not leaving the field of battle once you’ve achieved victory, and ending up forfeiting the victory to some future moment of rotten luck.
 
Don’t even get me started on people who don’t bother to do any meaningful retirement prep in the first place (i.e. the majority of the population).
 
These are the kinds of things that have the potential to be the worst mistakes.  Like, ever.
 
But missing out on a few silver coins appreciating in value?  If that’s the worst thing that ever happens you will have lived a charmed life. 

By Brad Thomason, CPA
 
I don’t spend a lot of time talking about budgets, living within your means and having some dollars left over for savings.  My focus is retirement, and that’s the primary thing my audience is interested in hearing about (I think…).  To my way of thinking, those aren’t really retirement topics, per se.  Let me explain.
 
 It’s not a matter of those things not affecting retirement.  In fact, they impact it quite a lot.  Without them, it’s hard to see how retirement, as a financial proposition, could even be a thing.   
 
In other words, if you don’t have those basics out of the way, we can’t really talk about retirement in the first place.  They are essentially the entry requirements.  Retirement is about growing capital, over time, so that it can support income withdrawals in the future.  Can’t have much of a capital discussion if there’s no capital, nor any basis for knowing what the income requirements might be.
 
So my tendency to not talk about them is an assumption that anyone listening already has them squared away.  Or at least knows they will have to, and is working on it.  Either way, there’s not much need for me to bring it up. 
 
But since we are now on the topic, let me mention another assumption.  It might not be as obvious as I think these other factors are.
 
Just because you know that you are going to have some bills in the future, and are saving money today to help with that effort, it doesn’t mean there’s a match between the two.  The exercise, ultimately, is not about merely putting back some money, but enough.
 
How much is enough?  Well, as we’ve addressed over a great many of the materials on this site, that’s not an easy thing to answer.  The process for answering it is well defined and logical, maybe even so much so that it would be fair to call it simple (i.e. not complicated).  But that’s not the same thing as easy, and in our experience, any of the one-step approaches leave something to be desired.
 
But you can get a broad sense by merely observing a handful of facts that you already have at your disposal.  For instance, you probably know about what you spend over the course of a typical year right now.  You probably know what your annual income is.  What are those amounts multiplied by 15, or 20 or 25?
 
You may not spend as much in retirement as you do now (though that’s often not the given that some people expect it to be), and you’ll have some help from Social Security.  Maybe (hopefully) your capital earns net returns – meaning not only that it makes positive returns, but that it does not give them back at some later date due to losses. 
 
On the other side of the equation, inflation will erode your purchasing power over the decades of your retirement.  And medical expenses may show up in ways that pay no attention at all to your yearly budget assumptions.  The interplay of these factors, for and against, has a lot of impact on what the answer ends up being. 
 
Then again, to some extent, those impact items have a tendency to at least partially cancel each other out.  So using your current income and expense levels as the basis for some rough estimates is not completely off base.
 
I talk to folks all the time who ask me how they are doing.  They show me their numbers, they tell me what they earn and spend.  Frequently I take a glance and tell them, surface level, it looks pretty good.
 
Sometimes though I get the question from people who should frankly already know the answer.  I’m not trying to be mean when I say that, and I try not to be unkind to the people who ask me.  But if your savings equal one or two times what you spend every year, is there really any question about how long that’s likely to last?
 
Complex discussions almost always exist within a context of certain assumptions.  To meaningfully discuss retirement implies that there is already a level of financial control in place which covers such basics as budgets, consciousness of expense levels, and the accumulation of savings to fuel the capital growth effort.  But those aren’t the only assumptions. 
 
In addition, there is a requirement of something we might think of as scale.  A sense that the resources bear a logical relationship to the job we are asking them to do.  It is not always apparent, without some measurement and calculation, what the exact match needs to be.  But when the mismatch is great enough, no such efforts are required.  Such disparities are obvious if we only look. 
 
If we look and find them, then we need to realize that the immediate goal should be to get them squared away.  Until they are taken out of the equation, all of the rest of the work we need to do to get a retirement win is going to be difficult if not impossible.
 
Knowing what the assumptions are and making sure they are met is a basic step.  So basic it is often overlooked.  But just because it doesn’t get the airtime that other topics get doesn’t mean it isn’t important.  In fact, just the opposite is true.