By Brad Thomason, CPA
It is often the case that blogs which appear in this space are written weeks, and sometimes months, in advance. Then we pick a day out in the future, tell the software what we selected and the system auto-posts them when the day arrives. This particular post is just such an entry. I wrote it back in December or early January. I don’t remember exactly, but the point is it was written long before anyone knew there was such a thing as a corona virus, or that we would be in the midst of a steep market decline by the time March 2020 rolled around. We decided to let it go ahead and post. But I want to make clear that it is not a coy suggestion that I knew this was all going to happen ahead of time. To be sure, I have written many, many times about the effect of something like this happening. But I didn’t know this was what the latest version would look like any more than anyone else did; nor when it was going to show up. I also don’t want to be accused of offering unhelpful advice – that is, saying you should prepare for problems after the problem has already arrived. I understand you can’t change the past. However, as I said, we made the affirmative decision to go ahead with this post, and did so for the simple reason that it is sometimes very tough to get people to think about what might go wrong in the midst of good and prosperous times. Sometimes the only way to get a lot of traction on that topic is to wait until everyone is a little jarred by recent events. I think the current moment qualifies. Even if you have already missed some opportunities to do anything about this latest problem, some contemplation of these topics may help you to be in a better position when the next one comes along out there in the future. History says we’ll get past this one. If history is wrong, then there’s nothing left for us to talk about. But if history is right then the sun will shine again, prosperity will come around again, people will get giddy and careless again, and another problem will eventually come along to shock the financial system. Essentially, I went ahead and let this blog post today in anticipation of that distant event. If you don’t like the way things feel right now, once the dust settles, take some actions so that the next time one of these things comes around, it won’t sting as much.
When you make your living as an advisor, you spend a lot of time going back and forth between fact and opinion. The basic structure of advice is ‘here are some facts, and here’s what I think you ought to do about them.’ As long as we live in an uncertain world, the portion about how to react will always be somewhat tied to opinion. As such, the action step is more open to interpretation than is often healthy for the parties involved.
It is always my hope when I’m talking to someone that when I show them the four (as an example) most relevant facts for a particular situation and say based on the facts I think they should turn right, they too look at the facts, give a nod of the head and agree that a right turn is the obvious choice.
That’s not always how it goes, though. Over the years there have been plenty of times when the person I was talking to concluded that a left turn was the correct response.
Sometimes, no ill effects resulted. But there have been plenty of times when they did. A few times, catastrophically so. The nature of these conversations has a common structure. I say something to the effect of, “I wouldn’t do that if I were you.” The response which comes back is usually some variant of, “I’m sure it will be fine.”
I have come to accept that I can’t always make people see things the same way I do. Moreover, it is certainly the case that some of the negative possibilities which I spot never come about. But when they do it feels especially unfortunate. It feels like the pain could have been avoided. As much as I like being right when things go well, I hate being right, even more, when they don’t and we foresaw it as a possibility.
When we start to focus in on the specific matter of retirement income planning, we inevitably start to envision a version of the future which we need to figure out a way to bring about. What we come to understand pretty quickly is that even if everything goes according to plan, it’s still a mighty big job. And of course, things might not go according to plan.
Well, to pull all of that together, having seen a lot of things go right over the years, as well as a fair number of things that went wrong, I have observed that success stories tend to come in one of two types. There are the ones where everything works out fine, primarily because nothing of any real negative impact comes along, and they never really get tested in the first place. Then there are the ones which encounter some curveballs, but find a way to win anyway.
I can’t tell you which version of the two you will encounter (note also that there is a third category: those stories which don’t end in success). But I can tell you that in a lot of cases where a family weathered a storm or two on the way to an eventual win, they were able to do so because they anticipated problems from the outset. Or they were at least mindful of the fact that things might not go according to plan. As a result, they had prepared for them.
How do you prepare for every eventuality which might go wrong? You don’t. At least not in terms of specific counter-measures.
Instead, the general approach is more robust. Such an approach is based on two basic concepts: insure yourself against the most likely risks, and have the ability to quickly access some cash without it disrupting your entire portfolio or causing you to have to take massive discounts to get liquid.
As I have stated elsewhere, throwing money at a problem may not be an elegant solution. But it is often damn effective.
Writing an unexpected check is never fun. But not being able to write one, or having to do gymnastics to get in a position to (at a time of great stress, no less), is a lot less fun. When problems arise, it is so much better to know that you have some resources available to respond with.
Will it cost you some money to pay insurance premiums or keep some of your capital in more easy-to-reach places that carry lower interest rates? Yep. But it is just a feature of reality that benefits have costs. Like you granddad told you: no free lunches.
My advice to you today is this: don’t assume everything is going to be fine. I hope it will be. But reality is that it may not.
I bet you already knew that, though. So really what all of this comes down to is what you are going to do about it. Some day in the future, when a problem shows up, a little voice inside your head is going to say, “Yep, I thought something like that might happen.” What you do or don’t do in preparation of that day will determine whether or not being right was a good thing or a tragic one.
Older blogs (2015-2017)