The Onion Strikes Again
By: Sam Swift, CFA, CFP®
I love The Onion. The satirical newspaper is one of the most consistently humorous places on the internet for my money (which is $0 since I can read the articles for free, but still). Recently, I ran across the following headline there: Nation’s Financial Advisors Recommend Capturing Magical Creature That Grants Wishes
CHICAGO—Calling it the most reliable strategy for ensuring financial stability in the current economy, a report released Thursday by the National Association of Personal Financial Advisors recommends that middle-class Americans capture a magical creature with the power to grant wishes. “Taking into account the average American’s present level of savings as well as prevailing market conditions, there simply is no sounder choice individuals can make than venturing into a hidden glen or cavern, luring an enchanted creature from its dwelling, and then apprehending it and using its offered wishes to build a solid financial plan for the future,” said researcher Alison Knox, who explained that whether the wishes were acquired by sparing the life of a talking golden fish, rubbing an ancient Arabian lamp, or intoning the name of a woodland troll backwards to make him one’s captive, Americans would be wise to set aside one of their wishes for an ample 529 college savings plan for their children and use another wish on a well-funded retirement account.
Like most of The Onion’s best articles, there’s a measure of truth behind this one: many are pessimistic about their own situation, their ability to navigate the financial services industry without getting ripped off, or the direction of the markets over their lifetime. If the task in front of you appears that daunting, then it can seem like capturing a “wish-granting magical creature” is the only way forward. Let me dispel some of those fears.
First, I admittedly can’t do much about someone who is pessimistic about their own situation. I can say that I’m confident it’s probably not as bad as they think it is. More importantly, I can say that I’m positive the best time to do something about it is today. A bad financial situation will only get worse the longer one puts it off.
As for the concern that the financial services industry is just waiting to confuse and rip people off, well…I wish I could counter that concern more forcefully. Unfortunately, that’s a fair criticism for a lot of the industry, but the good guys are growing. Make sure you hire a fiduciary (legally liable for putting your interests ahead of their own—I know, it’s sad that all advisors aren’t required to do this already) and make sure that they’re providing planning value commensurate with their fees. If you don’t understand why or what you’re being charged, it’s fair to say you should re-examine your situation.
Finally, pessimism regarding the long-term direction of the markets is a valid concern if all one did was read financial headlines or if one’s only investment experience was in U.S. stocks from 1999 through the bottom in 2009. To repudiate this mindset, I’ll break out one of my favorite facts. The market has drops of over 10% about every 11 months on average. Despite this, it has close to a 10% annualized return over the last 90 years. It’s going to be bumpy and things will look horrible from time to time, but the long-term power of the markets isn’t going away. It’s not different this time.
In essence, if you sum all of this together, I actually think the “magical creature” exists. It exists in the sense of starting early, spending less than you make and saving the difference, investing in the long-term power of the stock market, and keeping your investment fees low. If you’ve done that, you simply leave the “magical creature” alone and you’ll find that your wishes are very likely to come true.