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Failure Is An Option

Updated: Mar 15

You may or may not know this about me, but I’m a huge movie buff. I love a good story, and the escape of a big screen blockbuster is one of my favorite indulgences. My go-to genre is Action/Adventure, but I love a good Suspense/Thriller as well.


Most movies follow a predictable story arc, especially films that involve a traditional hero/heroine archetype. Whether we realize it or not, many of the stories that we see on the big screen are formulaic in nature. The really good films don’t let us fully see the formula, but it’s there.


We meet the hero. The hero discovers a problem. A guide appears to help the hero go through some trials, and ultimately, the hero or heroine prevails. We all go home happy and (hopefully) entertained.


The secret to a good action film is making you wonder how on earth our beloved hero is going to prevail. We the audience can’t possibly know HOW the hero will succeed, but we have an innate sense that victory is only a beat or two away. Failure isn’t an option for our hero.


This is fantasy. Real life doesn’t always play out like the movies. Even though many of us have an active role creating our own story, we aren’t guaranteed a happy ending.


When it comes to personal finance, failure is definitely an option.


I’ve been ruminating on the idea of “failure” for some time, and this article is my first attempt at articulating the message. My goal here isn’t to get it right per se. Instead, my hope is to get all of us thinking again.


Over the last 2-3 years, I have noticed a shade of overconfidence creeping into the language of some investors. In a post-COVID world (are we there yet?), many investors have come to believe that stocks only go up while bonds are boring and safe. This view is misguided.


You may be thinking, “Michael, where have you been? This entire year has been brutal for stock and bonds.”


I would agree that this year has been tough, but in my opinion, much of this downward trend began last year:


The most logical question that follows a chart like this tends to be, “How long will this last?”

The honest answer is “I don’t know.”


In the most recent Fed meeting at Jackson Hole, Chairman Powell doubled down on his hawkish tone. Markets fixated on a specific statement:


“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

No one likes the idea of pain. In fact, we humans take great lengths to avoid pain. Thus, any suggestion of pain coming from the leader of the Fed is an unwelcome one. Markets have responded accordingly.


Now we find ourselves in a situation where the Fed is signaling that they’ll continue to push forward with monetary tightening and raising the federal funds rate. Meanwhile, Washington continues to spend like a new lottery winner, exacerbating the inflation pressures that the Fed is attempting to fight. It’s a clown world.


Despite the collective genius we have at the monetary dashboard, I’m still a free markets guy. I believe most problems can and will resolve themselves if our leadership will allow markets to work things out. This isn’t likely to happen.


The environment we find ourselves in at the moment can crush investor confidence, with many investors beginning to feel that they may be on the road to failure. So, let’s talk about failure in an appropriate context.


Depending on where you are in your financial journey, failure can take different forms. Let’s look at two:


Not Saving Enough

We live in a consumer driven culture. One thing America does exceptionally well is make champion consumers. We need to be creating champion savers.


Why is saving so important? There are obvious reasons that you can read about in just about every personal finance book or blog. The not-so-obvious reasons are more obscure:


Most people are not wired to be good investors. A very tiny percentage of people have the intelligence, temperament, and interest to excel in the field of investing. The problem is that the majority of us believe we are above average and therefore expect above average returns. Reality paints a different picture.




If we expect higher returns, our spreadsheets and online calculators will reveal that we don’t need to save as aggressively. More discretionary money today equals more fun today. We like that.


Saving requires discipline, and discipline is very much like a muscle. If you don’t use it, it gets weaker and diminishes in its ability to function. Many of us fool ourselves into thinking that we’ll save more “tomorrow.”


Days turn to weeks. Weeks turn to years. Suddenly, we find ourselves behind and want to begin saving aggressively. This shift is extremely painful because it requires a huge shift in lifestyle. Few can make this happen.


You may not be able to work as long as you think. The average retirement age in the United States is 63 years old. If your plan is to keep working as long as possible because you lack savings, that may not happen.


Running Out of Money

Just about every consumer survey that I’ve seen in the last few years lists “Running out of Money” as the number 1 fear of retirees. There are various approaches to solving each household’s retirement income calculus, with each approach being impacted by unique variables to each and every client.


However, not all plans or planning strategies are the same. Some plans can fail. Other plans can fail spectacularly.


In retirement income planning, we often have to make some assumptions. We can’t possibly know what life will look like 10 / 15 / 20 years from today, so we use technology to help us with simulations. These “Monte Carlo” simulations are far from foolproof, but they can provide us with some insights on how decisions we are making today can play out in the future.

In recent years, there has been ample discussion about how “failure” in monte carlo simulations can mean different things:


Initial planning simulations take today’s data inputs and run simulations over 20 to 30 years. The results you may see don’t show the impact of good planning decisions and lifestyle adjustments over that time because they can’t. This is why we stress that planning is a continual process–not a singular event.


Running out of investable assets and running out of income are 2 different things. I know this sounds weird, but hear me out. Let’s pretend that you have 85k in retirement income that comes from a combination of social security, pension, and guaranteed income benefits.

You feel good about your income, so you invest your life savings in your nephew’s new business adventure. He fails, and your investment goes to zero.


You no longer have any capital, but you still have your income. This scenario would be painful–and probably ruin your family dynamics–but you wouldn’t be broke. At least not initially.

This scenario is a far cry from someone who has 38k from social security and needs their remaining income to come from their portfolio of investments. This investment portfolio is now a lifeline. Any significant loss may wreck your retirement.


The magnitude of failure matters. Again, I know that sounds weird, but a smidge of failure isn’t the same as catastrophic collapse of a retirement income plan. The difference is worth considering.


For example, an 88-year-old widow who has to cut back spending slightly is not the same thing as a 75-year-old couple who has to make major lifestyle shifts. One adjustment may be barely noticeable, while the other may be quite painful.


Can Failure Be Avoided?

This is the tricky part. There are so many variables that come into play when we consider our personal situation, today’s economic forces, and longevity. Each of us needs to be clear-headed about the different roads we may travel in the years ahead. No matter how hard we may try, the future remains unknown and unknowable.


I still believe that the best way to deal with this uncertainty is to create a personal financial plan and work with a financial advisor. Holistic financial plans are simple enough to understand yet dynamic enough to shift and change over time because planning is a process, not an event.


A good financial plan will account for many of the major events we can imagine– a major downturn, loss of a spouse, unexpected job loss, etc. Yet, a good financial advisor can also adapt our plan to be flexible when surprises happen. It’s always the stuff that we don’t see coming that may deliver a knockout punch.


I believe that we do ourselves a major service by creating financial plans that align our capital with our personal values and priorities. As Polonius told his son Laertes in Hamlet, “To Thine Own Self Be True,” so we should be with our finances.


In many cases, the biggest obstacle to our success will be staring at us in the mirror every morning. Of course, we don’t knowingly harm ourselves. That would be crazy.


Instead, we slowly acquiesce to our excuses– too busy, too tired, not interested, tomorrow, next week, after the holiday, etc. Days have a funny way of turning into years when we aren’t paying attention. Don’t let this happen to you.


Each and every one of us has different priorities when it comes to money. The same economic and market winds blow on all of us. Sometimes we must tie ourselves to the mast, while other times we must adjust our sails.


Failure is never a goal, but it is on the menu. We must always remember that.

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