A failure in response


March 27, 2020

My Dear Reader,
We’ve been discussing this week the potential for financial catastrophe that we now potentially find ourselves in. There are three reasons behind my worry, and I doubt you’ll find them much discussed in the mainstream media. But before we get down to brass tax, I do want to set aside this first paragraph to open my services to you. It’s become very apparent to me that Financial education has become scarce here in the US, and moreover, solutions for getting clients out of market volatility have become few and far between. All over social media, and in talking with prospects this morning, I keep hearing over and over again that people just feel lost. Like they’re out of control, and there’s not much that anyone can do for them.

Yet the canned financial response seems to be to just tell people to stay where they are. From a certain point of view, I understand the advice. If you don’t take your money out of the market, then you can hopefully get yourself back to a similar point. Although Savvy readers will know that due to opportunity cost, true indemnification is impossible. While the response has been to stay in the market, even though it’s losing money, perhaps we should take a look at the plan itself. Was it in the plan to go backwards even if you’re contributing money? If so, what were your contingencies? Market crashes, even if they blindside us, are inevitable, but is the plan to just hold on to our money regardless of the market conditions? If so, then we must understand the opportunity cost of such an action.

Opportunity cost is the basic premise is that every dollar you spend today could have been invested to yield increasingly more money over time. This is a sobering fact: every dollar spent today will never again be able to work in your favor. For in-stance, $100 invested today at the market average rate of return of 7.91 percent will be worth about $1,000 in thirty years. So, every payment made today with your own dollars hurts you in the future. This is why excessive taxation, especially personal income tax, is so harmful to all levels of society. USA Today estimates that the average American pays roughly $10,000 in personal taxes per year. If we use this number and apply the current market average rate of return of 7.91 percent, that one year’s payment of $10,000 costs $96,463 thirty years later.
It’s because of this obvious hole in many financial strategies, that I am committed to changing the standard financial plan, and returning Americans to a stable financial outlook.

To your creation and potential,

Kevin Prendiville