Broker Check

Just Kidding, Sort of

April 25, 2018

Imagine I told you that for the majority of Americans an investment plan where they lost three percent every year on their money would benefit them tremendously!

Now, you might be wondering about the sanity of a person who thinks that a three percent per year loss would be beneficial to anyone. Please bear with me, though. There is a compelling point to be made. I will prove to you that the above statement, while sounding absurd, is sadly true.

According to a CBS News article from September 25th, 2017, 78% of the nation lives paycheck to paycheck. That is to say, almost 8 out of 10 people in this country have zero or close to zero money saved. The ramifications of this are daunting.

Obviously, no one would relish the thought of an investment guaranteeing a three percent per year lose. Yet, if we view the glass as half full, a person suffering that kind of loss would still be preserving .97 cents out of every one of their dollars saved.

When people purchase goods and services that they do not need, such as designer clothes, meals at expensive restaurants, lavish vacations, etc., they are incinerating 100 cents on the dollar. And please allow me to make clear that I am not against nice clothing, restaurants or vacations. However, far too many people in our country have grown accustomed to living beyond their means. Make that, way beyond their means.

I do not know about you, but I would far rather lose three percent of something than 100% of something.

Let us look at some examples:

Person 1: Saves $1,000 per month for 20 years and earns a three percent annual rate of return.
Person 2: Saves $1,000 per month for 20 years and loses three percent annually on their money.
Person 3: Lives a keeping up with the Jones’s existence and saves nothing.

And now for the results:

Person 1: Would have approximately $327,000 in savings after 20 years.
Person 2: Would have about $163,830 in savings after 20 years.
Person 3: Would have $0 dollars in savings after 20 years.

Person 1 and Person 2 have stockpiled some form of freedom. Money saved is a form of freedom, because it gives you options and allows you opportunities in the future. Person 3 has cultivated what will most likely be future misery.

It does not take a person with an advanced degree in mathematics to know that Person 1 is best off by far. However, Person 2, losing three percent a year, is a heck of a lot better off than Person 3, with no savings whatsoever! And obviously, a finely tuned plan to build wealth is not going to set its sights on a negative return.

I do not believe anyone sets out to be Person 3. I do believe that few individuals are honest enough with themselves to admit that person 3 is who they are on the path to becoming. Instead they tell themselves that they will save money in the future, that they will make up for their profligate ways, starting tomorrow or sometime soon.

In my experience, some folks look at saving for the future as if they were playing golf and they were going to make up everything on the back nine. These folks blind themselves to the fact that they won’t actually have any money to participate in that life changing venture in the future because they haven’t saved it in the present.

Too many of us tell ourselves that, when it comes to saving money that we will buckle down, like we know we should, after Memorial Day, the summer, Labor Day, Thanksgiving, Christmas, Hanukah, New Year’s Day, Valentine’s Day, Easter, you get the idea.

There is no doubt in my mind that most people believe what they tell themselves. Every word of it. Yet somehow the days turn into months which become years and ultimately decades. One day folks wake up to the sobering reality that far too little money was saved. What should have been the golden years might feel more like the copper or tin years. Or worse.

It need not be so.

Ironically, people might hesitate to start saving for fear of losing money. Others, for fear of not making as good a return as they think they should. As Shakespeare told us so many years ago, “our doubts are traitors and make us lose the good we oft might win, by fearing to attempt.”

We all know that, ultimately, we must act. But the magic is not in the knowing, it is in the doing. Plan and take action. Make a commitment to programmed saving and start saving today. If you like, consult a financial planner you trust to help you.

Scott R. McGimpsey April 25th, 2018

This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. Neither Summit Brokerage Services Inc. 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 with securities offered through Summit Brokerage Services Inc., Member FINRA, SIPC