“Nobody goes there nowadays, it’s too crowded.”
I don’t know what Yogi Berra was referencing when he dropped that quip, but I can only assume he was talking about Brigs at the Park on Highway 55 in Durham. Nobody even thinks about going there after church on Sunday because it’s just too crowded.
But Yogi’s quotes are good for more than just brunch advice. We can actually extract a lot of retirement planning wisdom from some of the things he said. Let’s break down a few classic Yogi-isms and find the financial planning wisdom within…
“I never said most of the things I said.”
Have you ever had an experience where you thought you were buying something with a particular feature or benefit, but then down the road you discover that everything you remember from the sales pitch isn’t actually true?
Cable companies are the worst examples of this. The sales guy will promise you literally anything just to get the sale made. Then when the tech guy shows up to install everything, you suddenly find out that the laws of physics don’t mesh with what the sales guy told you.
“They said the TV would be able to read your brainwaves and you could change the channel just by thinking about it and you don’t even have to use the remote? No ma’am, we can’t actually do that.”
But good luck getting anyone at the cable company to acknowledge the fact that you were led astray.
“Oh, Ted told you that? He’s not with the company anymore.” Or in other words, “We never said most of the things we said.”
In the financial world, this confusion usually manifests itself in the form of investment projections. It’s important to understand the difference between something that’s contractually guaranteed to happen and something that could happen. If you’re being given a sales pitch for a particular product, there’s a good chance that a lot of time will be spent on what could happen. Be sure you have a clear understanding of what’s being promised, as opposed to what’s being projected.
“A nickel ain’t worth a dime anymore.”
Well Yogi, I’m not positive that a nickel was ever worth a dime, if we’re being technical. But your point is understood. Inflation can really take a toll on the buying power of a dollar.
When you think about the fact that inflation hums along at a rate somewhere between 2.25-to-3% per year (depending on which statistician you ask), that metric by itself doesn’t seem all that daunting.
But once you start adding up the cumulative effect of inflation over the course of a 30-year retirement, suddenly the situation appears to be a bit more daunting. If you’re retiring at 63 and you want to spend $8,000 every month, that means you’re going to spend $16,000 each month when you’re 85, if you want to have the same buying power.
Most people understand the concept of inflation, but haven’t really stopped to assess just how much it needs to be factored into their retirement income planning.
“It’s like déjà vu all over again.”
The cycles in the stock market usually look pretty similar. Things are going well and everybody is buying, then there’s a crash or a correction, and suddenly everybody is panicking and selling. Nobody can predict when these things are going to happen, but the way that people behave during these periods is always startlingly predictable.
And everybody always thinks they learned their lesson from the last crash…until we get a few years down the road and suddenly everybody behaves the same way they did during the last crash.
I spend a decent portion of my week talking to other advisors around the country, and the consensus is that most of them aren’t bringing on nearly as many new clients as they were five or six years ago. The reason for that is five or six years ago, the crash of 2008 was still very fresh in everyone’s mind, and they recognized the need for help with their retirement planning.
Today, in 2017, it’s almost as if nobody remembers that crash. Most people don’t perceive the need for any help or guidance. The average investor is quite content with the performance of their 401k, and assumes that they’ve finally gotten the hang of this game called investing. The reality, of course, is that a bull market has the power to cover up a lot of mistakes, so you don’t recognize the things you’re doing wrong.
But then the market crash will come and it will be déjà vu all over again.
The key, as always, is having a solid plan in place that addresses all of these issues and more—inflation, market volatility, tax efficiency, predictable income, etc.
Because, as Yogi said, “If you don’t know where you’re going, you might wind up some place else.”
The Gilligan Plan: Surviving Your Financial Shipwreck
You don’t have to look very hard to find a lot of fun conspiracy theories about Gilligan’s Island.
One theory is that the whole ordeal was perpetrated by the Howells. Their businesses were collapsing so they decided to create a new world for themselves. They specifically selected certain people to end up on this boat with them in the middle of nowhere. The Professor was essentially MacGyver, with his ability to make anything out of random spare parts. Ginger and Mary Ann were eye candy for Mr. Howell. The Skipper was there for manual labor for Mrs. Howell. And Gilligan is the buffoon who constantly ruins the plans to get off the island, thus solidifying the Howell’s reign forever.
After assembling their dream team, all they had to do was check the weather reports and head out for their boat ride on a day when they knew they were likely to get swept away by a storm.
The best support for this theory is the fact that the Howells are wearing different clothes almost every episode. Why would somebody bring so much luggage for a three-hour tour? Maybe because they knew it was actually going to be 98 episodes instead of just three hours?
Another theory is that this was a drug deal that hit a few snags. Thurston Howell was a dealer to the rich and famous who was on his way to rendezvous with a supplier in the South Pacific. That would explain his suitcase full of cash.
The Professor was there to put his chemistry degree to work. Gotta have somebody to check the quality of the merchandise.
Ginger was a movie star. Obviously one of Howell’s customers. And Mary Ann was either an unsuspecting tourist, or a narc who was hot on Howell’s trail.
Finally, there’s one conspiracy theory that’s actually true…or mostly true. The theory posits that the island is hell, with each of the characters representing the seven deadly sins. Mr. Howell is obviously greed. Mrs. Howell represents gluttony. Ginger is lust. Mary Ann, always jealous of Ginger, represents envy. The Professor, with all of his fancy book learnin’, represents pride. The Skipper is wrath. And Gilligan embodies sloth.
Years after the show went off the air, Sherwood Schwartz, the show’s creator, wrote in his book that this last theory is actually true. Not the part about the island being hell, but the fact that each of the characters was based on one of the seven deadly sins.
None of these theories have anything to do with my main point. From time to time, we like to break down classic TV characters and see what they can teach us about retirement planning (see previous posts about Fred Mertz and Jed Clampett). Today, I really just wanted to talk about Gilligan, but somehow ended up wandering down this conspiracy theory rabbit trail.
In any event, forget about the seven deadly sins. Instead, think about Gilligan the way that most people remember him. He was so lovable. Innocent, naïve, and really had the best of intentions. But at the same time, he also had some really bad luck and an accident-prone way of clumsily stumbling through life.
I recently met somebody who was in the same boat. (Pun intended). He was a real life Gilligan.
Super nice guy. He sees the good in everyone. Even if you’ve only known him for five minutes, he acts like you’ve been best friends for 35 years. He stops to give money to every panhandler he sees and can’t help but pick up the phone to make a donation to the ASPCA when he sees the commercial with the abandoned puppies.
And when it came to his investing life, he was a toxic combination of bad luck and terrible decision-making.
When he got divorced several years ago, and his ex-wife’s legal team ran circles around his attorney. He got taken to the cleaners on that deal.
He’d invested some money in his brother-in-law’s business about a decade ago. That was $50,000 that evaporated almost immediately.
His cat has a rare blood disease that requires a specialized treatment that costs several thousand dollars a year.
After the market crashed in 2008, he decided to get out of stocks altogether, and he never got back in. So he took all of those losses, sold at the very bottom, and then parked himself in cash and hasn’t experienced the growth of the last eight years.
And the crowning blow—he’d had a “financial advisor” who swindled him out of tens of thousands of dollars about 15 years ago. That guy is now in jail, but our real-life Gilligan never got his money back.
The sad thing about Gilligan’s Island was that the show ended with everybody still stuck on the island. When the third season of the show ended, a fourth season was expected. So the last episode of season three ended just like all of the other episodes, with the bubble-headed Gilligan ruining everyone’s chance to get off the island. But then season four was abruptly cancelled, and Gilligan and his buddies were stranded forever.
For our real-life Gilligan, fortunately, there was hope. It took several months of helping him get organized, rectifying some old tax mistakes to pacify the IRS, putting together a plan that had him putting his money into legitimate investments instead of fantastical family businesses or too-good-to-be-true scams.
It certainly wasn’t an overnight fix. After decades of bad decisions that had him financially marooned on a deserted island, we weren’t going to be able to rescue him with the snap of a finger. But with a logical course and a clear destination, he’s in a much better position than he used to be, and improving more every month.
Here’s the point. For some people, once they decide that they’re a financial Gilligan, they just give up and assume they’ll be stuck on this island forever. They assume that they’ll be working until they’re 78, then living in poverty for the rest of their lives after that. But I’ve never actually found a case that’s completely hopeless. A little planning can make up for a lot of past mistakes.
And it’s funny how it usually unfolds. When you take charge of your own situation, instead of just being depressed about your situation, that’s when your ship usually comes in.
Micro-Frugality: Does the Latte Factor Matter?
Matt Miner, guest blogger from Design Independence
I recently changed primary care physicians, and as a result got my first physical since sometime when my age had the number “2” in the tens-place.
One result of this was an early-morning blood draw today, for which I had to fast (something I’m not particularly gifted at) in advance of the draw. No wonder I only go for physicals every ten years.
As I began to head out the door this morning, my initial plan was to grab Starbucks and a breakfast sandwich on my way to work. But I paused. I was faced with a Latte Factor decision. The Latte Factor (tm) is a concept from David Bach, a solid mainstream personal finance author. His presupposition is that most American consumers will stay normal, American consumers, and so he provides specific recommendations for tweaking spending at the margin to improve savings rates (though I don't think he uses that term). You can get a great flavor for Mr. Bach's work in my favorite of his books, The Automatic Millionaire (you should buy the book via my link at the bottom of this article, both for Mr. Bach's solid content, and to support DesignIndependence.com).
But now back to my morning. Rather than the fast-food option, a different choice would be to assemble my usual bowl of cereal and make my usual coffee, and find a creative way to bring the ingredients with me. In fact, it wasn’t all that creative: I put the coffee in a thermos, milk for my cereal in a travel cup, and covered my dry cereal with plastic wrap. Total incremental time, including dish clean up tonight: 10 minutes, max. And now I sit here cozily enjoying my cereal, sipping my coffee, and typing some words into my computer for you.
But did this decision matter financially? I’d say I saved $8 at Starbucks (latte and sandwich). We can safely divide that by an after-tax rate pay rate of 60%, which gets us to $8 / 60% = $13.33 in gross income for ten minutes of work. That’s $80 as an hourly rate, which is fair, as such things go. And certainly my chosen breakfast had fewer calories, less paper waste, and less delicious salt than my SBUX fare would have offered.
How about over a lifetime? Well, I get my blood drawn every ten years. Ignoring the time value of money and assuming ten more blood draws in my life (yes, I know the frequency will likely increase in the out-years, but those are the most discounted from a time value of money standpoint), we calculate un-discounted lifetime savings of $133.33, for making this same decision every time I get a blood draw...
Read the rest at Design Independence...
The Stairway to Retirement Planning Heaven
If there’s a bustle in your hedgerow,
Don’t be alarmed now,
It’s just a spring clean for the May queen…
If you have any idea what Robert Plant is talking about here, feel free to let me know. But, esoteric lyrics notwithstanding, there are some good retirement planning lessons we can learn from Led Zeppelin’s “Stairway to Heaven,” believe it or not…
1) Stairway to Heaven, arguably the most famous rock song of all time, was never released as a single to the general public. For several weeks (maybe months) after it was first introduced, you couldn’t even hear it by buying the entire album, because the album hadn’t been released yet. Literally the only way to hear the song was on the radio. Eventually, you could buy Zeppelin’s untitled fourth studio album (often known simply as Led Zeppelin IV) if you wanted to be able to hear the song whenever you wanted.
So what does this have to do with your financial planning?
Well, just as the radio stations of the day initially served as the only conduit between the artist and the consumer, there are some things in the financial world that you just can’t access without professional help.
As an example, I was talking with someone recently—we’ll call him Jimmy—who decided that he’d discovered a shortcut to assembling his portfolio. Jimmy’s brother was working with a financial advisor who had constructed a relatively well-diversified portfolio of mutual funds for him. So Jimmy said to his brother, “Look, just show me what this guy has you invested in and I’ll put together a portfolio that looks identical, but I won’t have to pay any fees or commissions to an advisor.”
So that’s what he did. He picked the exact same funds, weighted with the exact same allocation as his brother’s account.
Fast forward two years. His brother’s account was up 7.2%. But Jimmy’s account was only up 5.6%.
So what happened?
What Jimmy didn’t realize was that the advisor was buying institutional shares for his brother, which meant the internal costs of the funds were much lower. Jimmy was buying the exact same funds (or, at least, they had the same name), but he didn’t have access to the institutional shares. Essentially, Jimmy was buying the funds at retail while his brother was getting them at wholesale. And over the course of just a couple of years, that made a pretty substantial difference in his portfolio.
2) John Paul Jones elected to not use a bass guitar on Stairway to Heaven because he thought the song sounded more like a folk tune and the bass wouldn’t really fit. So instead, he added a string section, keyboards, and flutes. Very different from anything Zeppelin had done in the past, but it worked perfectly in this instance.
At some point in your financial life, you’re going to reach a point where you can’t just keep doing the same thing you’ve always done.
Most people usually reach this point once they get within 5-10 years of retirement. At this stage, I generally start to hear statements like…
“At this point, I don’t have a very high risk tolerance.” Or…
“We’re not that interested in making a lot more money, we just don’t want to lose.”
Some people adopt that mindset earlier than they probably should, and some arrive there much later than they should (or they never shift their mindset at all).
The problem is that most people intuitively and emotionally know that they need to be doing something different, they’re just not sure how to tangibly make it happen. In other words, they know that the bass guitar isn’t a good fit for the song they’re currently singing, they just have no idea how to work in the string section instead.
And, of course, that’s what we’re here for. So, to quote Stairway to Heaven once again…
Yes, there are two paths you can go by
But in the long run
There’s still time to change the road you’re on…