What Is Social Security Telling Us?

photo shows a fan of $20 bills with a rubberbanded roll of $1 bills on top of it

We’re taking a swig of some big news, fresh from the Social Security Administration.

They’ve announced that the COLA—the Cost-of-Living Adjustment—for 2022 will be 5.9%. Payments for January 2022 will be increased by that amount.

Who doesn’t like getting a raise? But let’s think about how we earned this one.

Our cost of living has been rising. Inflation is running at levels we have not seen in decades. And the laws governing Social Security benefits call for annual adjustments to help offset the rise in the cost of living. In other words, our expenses have been rising for some time, and this “raise” will help us get back some of the purchasing power we have lost.

Inflation has other ramifications, too. Sometimes we assume that financial things with stable values are safe. Savings accounts or certificates of deposit, bonds, and other fixed-income investments generally do offer more stability than long-term equity investments such as common stock.

But perhaps the news from the Social Security Administration is a chance to remember that our cash on-hand pretty much always buys less this year than it did last year—because of the cost of living. If we make 1% interest while prices rise 5%, we are going backward in purchasing power over time.

When there was little inflation, our cash cushions did not cost us a lot. We love the sensation of having the money we need, readily at hand. Funds for emergencies or opportunities are always good to have.

But the purchasing power of excess cash laying around is melting away, day by day. It might pay to consider whether more should be committed to long-term investments.

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

Investing includes risks, including fluctuating prices and loss of principal.

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The Monster Under the Bed


When we were small, some of us had older brothers who tried to convince us there was a monster under the bed. You may be surprised to know there is a corollary in the world of investing.

The monster promoted by some is generally called “the arithmetic of losses.” The arithmetic of losses is a simple mathematical observation that from a given number, if you take a certain percentage decrease, and then an equal percentage increase, you wind up lower than you started–even though your increase and decrease were proportionately the same. For example, if you start with $100, and lose 20%, you are at $80. If you gain 20% of $80, you’re still only back to $96. But we are here to tell you, there is no monster under the bed.

Consider that when a major stock market index declines by 50%, it then does need a 100% gain to get back to even. This is just arithmetic. But consider: whenever a stock market index is at an all time high, that is conclusive proof that the “arithmetic of losses” is a bunch of baloney.

Each all-time high means that the index has successfully come back 100% from every 50% loss, 50% for every 33% loss, 25% for every 20% loss… and MORE. Every time, every loss thus far. The long-term history of major United States stock market averages speaks for itself, and incorporates all the losses and all the gains.

Some fearmongers say investors cannot live with the ups and downs that are a necessary and integral part of long term investing. Clients, you know we work hard to ascertain whether you could be suited to our philosophy.

Part of that philosophy is that temporary declines, no matter how sharp, are not losses unless you sell out. It is not always easy, but it has worked out. No guarantees about the future, of course.

If you can be turned into a chicken, then some operator who claims to ‘control risk’ or promises short-term stability AND long-term returns may get your money. Please keep in mind that every chicken, sooner or later, gets eaten.

The fearmongers are right about one thing: markets go up and down. You and we know this. We work hard to manage the money you need without having to sell out at a bad time. This is one of the keys to being able to get through the downturns.

Clients, we are striving to find bargains, avoid stampedes, and own the orchard for the fruit crop. These principles will not prevent volatility. But there is no monster under the bed. Email us or call if you would like to discuss this or anything else at greater length.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.