​Rounding Off the Corners

By Brad Thomason, CPA
 
 
The other day I was doing some work on an old fishing boat.  I like to fly fish sometimes, and there are certain things you need to do to a boat to make it most conducive to that activity.  Fly line, being off the reel and lying at your feet in between casts, has a tendency to find literally everything which it can possibly get hung on.  So the typical array of cleats, bolt eyes and other tie off hardware that is standard on most boats needs to be changed out. 
 
But even that isn’t enough, as it takes nothing more than a crisp 90 degree corner sometimes for the line to get tangled, ruining a cast and maybe losing a shot at a fish.  In addition to the other modifications and the overall de-junking of the bow, it pays to take the time to remove anything with sharp edges.  Or at least smooth them down and round off the corners.  Can’t really change the physics of how fly line behaves.  So you have to adapt the arena to its peculiarities and hope for the best.
 
In a sense, your house serves the same type of function.  Human beings have gotten pretty good at staying warm and snug while the wind is lashing and the rain is driving.  We haven’t done this by making any changes to the operation of weather.  Instead, we’ve gotten ever-better throughout the centuries at building structures which put some space between us and nature.
 
This theme of taming the unruly without making it go away plays out in the financial markets, too.  As we saw last year, the Fed can raise rates if they want.  But if the market wants to go the other way, the Fed will eventually have to yield (no pun intended) to the move.  However, even if the Fed can’t actually force rates to remain at one level or another, the way it works mutes the kinds of wild interest rate moves, back and forth, which would be more likely in a completely open market, non-central-bank world.  It makes for a more stable environment for commerce to occur in.
 
Individuals benefit from recognizing this theme and deploying analogous measures in their own financial dealings.  The kinds of assets which are widely available to retail investors is not something that the masses have a lot of control over.  Nor can we do much to change the inherent risk of particular investment assets.  But we, the members of the mass, can make sensible decisions about how we react to this situation.
 
By diversifying our holdings across a suitable array of investment types and products we create a range of options for funding income needs through our withdrawals.  Having many “buckets of money” lets us fine tune our decisions to the situation we’re facing at a particular time.  Depending on the circumstances, we can pull money from the combination of accounts which makes the most sense this year.  And if the circumstances change next year, we can use a different combination to cover those funding needs.
 
More broadly, as we age we can make an overall shift in risk level by reallocating capital away from growth assets to store-of-value assets, and considering insurance coverage for risks that we don’t have other good ways to make less threatening.
 
We all know that there’s a whole bunch of stuff out there that can interfere with our plans, at best; and in some cases wreck them altogether.  But just because we can’t make them go away doesn’t mean we’re completely powerless.  At times there are things we can do – often pretty straightforward things – which will serve to decrease the probability of a hiccup, or at least lessen the impact of it should one happen anyway.  The extent to which we recognize these possibilities and take advantage of them can end up being a major plot development as our retirement story plays out.