Hodgepodge and Potpourri – Part One

I grew up watching Jeopardy with my family; it was a family tradition. I remember being amazed by how many answers my parents knew. Every so often, I’d sneak in with the right answer on a sports trivia category. This time together would eventually morph into family Trivial Pursuit (the board game) nights, where I’d team up with mom or dad versus one of my siblings. 

I remember as a young adult being over at a friend’s house and watching their family enjoy Jeopardy together too. My friend’s father had a good approach, he would record the episodes on his DVR and then pause the screen after each question to allow everyone time to think and then blurt out their answers. 

As I mentioned, I was partial to the sports categories. Although, I always thought it was quite humorous how specific and obscure some of the categories could be. I thought to myself, “Someone out there actually knows the answer to five different questions on 19th-century Danish Composers!?” (The answer is “yes,” and that person is Ken Jennings.) Then there was the inspiration for today’s discussion – Hodgepodge and Potpourri. These were the “catch all” categories where all the unrelated left-over questions could be housed together under one roof, one single header. 

There is no common thread that links the four topics (or curiosities) that I’d like to discuss. Each of these topics on its own does not warrant a dedicated article, so instead today we will take the potpourri approach. Here comes a hodgepodge of financial oddities that have piqued my interest.  

So, without further ado…

In for the Long Haul

Most financial planning software defaults to a plan that runs to 90 years old. Why? I would suppose whomever the decision maker was set that default based on the national average life expectancy and rounded it up from there.  At the time it probably seemed simple and the approximation felt appropriate, so they went with it. BUT is that the right number for you? Based on your health, your hereditary background, gender, etc. your estimated life span may be very different.  

Perhaps an odd way to frame this, but longevity is a risk. Talk to every pension plan in America, or the Social Security department for that matter, the actuarial data looks a lot different when folks live just a bit longer on average. Although I may disagree with their advice/guidance, it is very popular amongst the personal finance Ph.D. world to recommend a Single Premium Immediate Annuity (SPIA).  This is their solution for longevity risk, the intent is that one would pay a lump sum now for income to be claimed at a future date (maybe 80 years old).  For the PhDs, these types of solutions look great in a Monte Carlo simulation, which supports their advocacy, whereas I would prefer dividend growth as a solution, but we will save that conversation for a future article 🙂 

So, whether longevity would impact you outliving your nest egg or just becomes disruptive to your estate planning strategies, you should consider what impacts living longer will have.  

I am the last guy you should look to for medical advice or medical insights, but I do want to share what sparked these curiosities. I’ve recently listened to two different interviews with highly acclaimed professionals in the field of longevity and they both talked about medical advancements that they believe will significantly prolong life. I also recently read some of the statistics on the correlations between wealth and longevity. I serve wealthy individuals and on average my clients (based on the statistics) should outlive the national averages on life expectancy. Couple these truths with my recent article (Going Through Withdrawals) where I illustrated a misallocated investor having the misfortune of retiring in 2000 and running out of money in just 17 years.  It’s here you will find the collision of my curiosity and concern.  

If you are destined to be a centenarian and you retire at 60, you may very well be retired for longer (more years) than you actually worked. Based on current valuations and current interest rates, most would agree that return assumptions are going to be just a shadow of their historical predecessors. A longer life with lower returns means that one would need to shore up this gap with an aggressive savings plan and/or a more modest retirement lifestyle. 

This may come off as a dreary outlook, which is not my intent. Here’s my ask of you, run your financial plan out further – 110 or 120 years old. This may seem outlandish, but it’s just an illustration.  The context you will gather is simply the impact of a longer life on your current financial plan. As mentioned, for some this exercise will not have anything to do with outliving their nest egg – they have more than enough to live multiple lifetimes – but it may be relative to how they’ve mapped out their current estate plan.  

“There is no reason why 120 needs to be the maximum human life span…”
– David Sinclair, Biologist & Professor of Genetics at Harvard Medical School 

Feeling Down & Out

It seems like anxiety and depression are commonplace amongst millennials. I couldn’t opine on the reason or cause, but many professional studies have cited that this generation is a standout in these particular struggles. I also know that money and finances can be a high cause of stress for anybody – regardless of age. Here’s my concern, the most likely generation to have the largest portion of their wealth in assets like cryptocurrencies and high valuation tech companies are also millennials; these are the type of assets suffering from the largest losses in 2022. 

We find ourselves in midst of that perfect storm, you have a whole generation of new investors that have experienced incredible returns in their first few years of investing, they are now getting walloped with their first bear market, and they are also the most susceptible to depression. How will this generation react? Will they swear off investing altogether? Will this depression have ripple effects on their relationships, schooling, and work life? I don’t know, but this topic is definitely something that’s been captivating my thoughts recently.  

I can’t tell you how many 40 somethings or 50 somethings that I have met that don’t have a dollar in the stock market. They say things like, “The stock market is rigged.” What shaped this attitude is their early investing experience in the late ‘90’s. I’m sure they had some immediate success during the rise of the tech bubble until… POP! When that bubble burst these investors felt like the rug get pulled out from under them, as stock prices plummeted. This one experience would stay with them throughout their investing journey; the remnants of this PTSD still surfacing today.  

I even mentioned in last week’s podcast, the story of a young man who took his own life after losing a significant amount of money investing in derivatives that he didn’t really have a full grasp of how they worked.  

So, again, what do we do with this information? What value do Trevor’s curiosities offer? What’s the practical application? I’d say it would be wise to (1) reflect on your own beliefs about how true investing (not speculation) works and (2) counsel the next generation of investors that are within your sphere of influence. Whether that be your own children or grandchildren or perhaps even a young person you mentor. Many have been led astray by the allure of get-rich-quick type returns and they’ve sidestepped the appropriate learning on what prudent investing looks like. Building wealth is hard work, it takes discipline and endurance, and it’s built over a lifetime, not overnight.  

Next… Part Two

Well, I’ve used up my 1,300 words for this week. We will split this hodgepodge of topics into two parts. I invite you back next week for “Tough as Buff” where we will dive into Warren Buffett’s recent portfolio results.  We will talk about how tough it can be to stay the course and why we should aspire to be tough as Buff. We will also discuss a section titled “Not So Fast TINA” in which we will challenge the There Is No Alternative adage.  We will explore some viable alternatives that an investor should indeed consider.  

Until then…   

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About the Author

Trevor Cummings

Private Wealth Advisor, Partner

Trevor is a Partner and Director of our Private Wealth Advisor Group.

As the author of TOM [Thoughts On Money], Trevor endeavors to write and speak about financial concepts and principles in a kind of “straight” talk demeanor and posture.

He received his Bachelor’s degree in Organizational Leadership from Biola University and his MBA from California State University, Fullerton.

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