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Little Is Big

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We were working recently with a client whose spouse passed away last year. Major life changes usually require a series of conversations to get everything settled and all the adjustments made.

This conversation showed us that “little is big.” The household cash flow was just a bit shy of covering the bills. Savings on hand were slowly being eaten up, month by month. If you have been in this position, you know it feels bad. It affects your attitude in a negative way.

A simple adjustment, slightly increasing the monthly withdrawal from invested balances, fixes it so there will be a little money left over every month instead of a constant shortage. The amount isn’t material to the sustainability of her finances. It was little, but changed everything. Little is big.

The same notion applies to other things in other ways, including investment analysis. Imagine the dynamics of an industry whose business is steadily shrinking by 1% per year, compared to one that is growing by that much. The shrinking industry would tend to have too much supply, poor margins, and dispirited employees. A slight difference—a little growth instead of a little shrinkage, would change everything. Little is big.

It matters in retirement planning, too. We did some arithmetic for a client age 40 with a $180,000 retirement account balance and $9,000 per year in deposits. A 1% difference in annual returns, the difference between 7% and 8%, makes a $400,000 difference in the amount accumulated at age 65. Little is big. (This is arithmetic, not a projection nor a prediction. No guarantees.)

This raises a question: if every little thing is potentially big, how do you keep track of it all?

For us, the answer is to keep the big idea in mind, and try to make sure everything we do advances the big idea. Our big idea is to grow your bucket, and strive to make it serve you as you need. Paying attention to the little things working to advance the big idea, that we can do.

Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

 

Two Ideas About Time

© Can Stock Photo / Klementiev

Two ideas about time affect our plans and planning when it comes to investing. There is conflict between these ideas, so we need to examine them more closely.

The concept of compounding wealth over time is alluring and powerful. Something that doubles every eight years would be sixteen times the money in thirty-two years!

What does thirty-two years mean in the context of planning for a lifetime? It is the distance between age 30 and when people begin to retire. Of two people at age 60, one of them might reasonably expect to be alive thirty-two years later. You may think that thirty-two years sounds like a very, very long time. But 62 year olds will tell you that age 30 seems like yesterday. Thirty-two years clearly is a pertinent time frame for life planning.

This is key because long time horizons are generally tied to long term investment results.

The other idea about time rests in one of the ultimate truths of our existence. We may think about the past, or plan for the future, but where we live each second is RIGHT HERE, RIGHT NOW! The survival of the human species in earlier ages probably required us to be vigilant of potential threats and lurking dangers at all times. There was nothing to be gained by thinking about tomorrow if a lion was going to eat you today.

So human nature has a bias toward focusing on the present. This manifests itself in unhelpful ways in modern society. We tend to think that current trends or conditions will persist—even when they are unsustainable. Some of us seem to believe there will always be time later to take care of longer-term priorities or goals. We have trouble picturing future changes.

The focus on the present also may explain why so many lack the context and background that history can provide. We have heard people say “This has never happened before” about many things that are a recurring feature of our history. By not understanding challenges overcome in the past, today’s problems may trigger an unwarranted sense of danger.

The focus on the present is in conflict with the idea of compounding wealth over time. Our role is to try to make sure that people have what they need for the present, have a cushion for emergencies, and keep a long term focus for their long term investments.

In other words, balance is key. Call or write if you would like to talk about the balance in your plans and planning.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.