​The Worst Mistake. Like, Ever.

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.