I would like you to join me in a thought experiment.
Part One:
Do you believe you can change your mind?
Most people, including me, feel sure they can change their minds, if new information comes in that renders our old beliefs untenable. If you believe you can change your mind, please move on to Part Two.
Part Two:
Of all things that are knowable, do you think there is anything you believe is true today that you will learn is not true?
Take a moment to think about your answer.
I feel most people, your narrator included, would allow that there are likely a good number of things we accept as true today that we will consequently discover are false.
Was that your response as well? If so, please move on to Part Three.
Part Three:
Of all the many things you are certain of today, which of those things will you learn you were wrong about?
Not so easy, is it? In fact, it is an impossible question to answer. If we were not sure of something, we would not think of it as “true” or “a fact” or something we “know.” Yet our rational minds realize we cannot possibly be the first humans in history who know everything that is knowable.
Belief and knowledge are not the same. But they feel the same in our minds and this can lead to expensive but avoidable errors.
Not a month of my career goes by that I do not speak with someone who believes they know things about planning or investing that are inaccurate. This is to be expected given that I have devoted my life to this industry, and they have not. Naturally, I am not an expert in their fields.
The danger to them is that they are making financial decisions that will reverberate throughout their lives and possibly the lives of their families, based on mistaken beliefs masquerading as knowledge.
How can we pull that mask back and differentiate knowledge from belief? Is there an acid test? There is.
All potential courses of action or specific financial instruments must be tested against data, facts, track records, logic, and available alternatives. Moreover, whatever we are already doing with our money should be subject to the same scrutiny we would direct toward something new to us.
Please answer this statement with a true or false:
Buying a home is a great investment.
Virtually every American will reflexively answer “true.” Yet it is mostly false when looked at strictly from the standpoint of return on investment. Especially if, as is mostly the case, the home is purchased with a mortgage. Depending on the interest rate, that home will be paid for 2-3 times by the end of the mortgage.
Please understand I am not saying it is wrong to buy a home or have a mortgage. On the contrary, home ownership can be one of the best quality of life decisions we ever make. It certainly has been for me. My intention is to challenge your thinking by using an example of a common venture most of us take as given but are actually wrong about.
And, I know, there are other compelling benefits such as mortgage interest write off and the fact that real estate has mostly appreciated over time. On the opposite side of the ledger, we have property taxes, insurance, and maintenance which remain even after we have paid off our home.
But let us be honest, when we are perusing Zillow or Realtor.com, most of us are not thinking “Hmmm, I wonder which of these homes I’d like to pay triple for?” Yet that is often the way of it. We are usually more focused on what we view as the benefits rather than the costs.
Buying a home has simply become what we do. It is as American as apple pie. Therefore, we generally do not subject the decision to the scrutiny we would when it comes to something less familiar. But perhaps we should, if only to gain clarity by comparison with other potential investments and assets.
If you consider taxes, insurance, maintenance, and mortgage interest (TIMMi), most people with a mortgage lose money over 20 years or make far less than they would have if the money going to TIMMi had been invested elsewhere. If you find this difficult to believe, just do the math.
All of this is not to dissuade anyone from purchasing a home. I and my wife own our home, and we are happy we do. Not every decision in life is all about dollars and cents. But in my role as a financial advisor, I would argue that our investment decisions should certainly be based on dollars and sense.
There are things today we all believe are true, that are not. When new evidence comes in that disproves our current beliefs, we can feel an implicit call to action. Yet change is not easy.
For this reason, I have noted that some folks work hard to avoid receiving information they suspect could upset current beliefs, assumptions, or preconceptions. And that is okay. Freedom means people are free to make mistakes.
If, like me, you want to know and not just believe - if you feel that knowledge does not harm us but only ever empowers us - and if you realize that more accurate information leads to better decisions over time - cultivate an enthusiasm for gathering evidence and a willingness to change your mind based on it.
If you would like assistance in gathering and evaluating information for your benefit, consider working with a financial planner who has earned your confidence and take action.
Scott R. McGimpsey August 31st , 2022
This blog post was written by Scott McGimpsey and does not necessarily represent the views of Cetera Advisor Networks LLC. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm.