Each year the college basketball season concludes with a tournament known as “March Madness.”
Part of the appeal is that there’s often a team from a small school that gets on a roll and beats several heavily favored opponents. Fans love these David vs. Goliath storylines.
This year, in the men’s bracket, the unlikely underdog was St. Peter’s University from New Jersey. The Peacocks beat three bigger schools before finally losing to the University of North Carolina.
It’s fun to watch “Cinderella” teams defy the odds. (Some fans, hoping for a once-in-a-lifetime payoff, also enjoy betting on such teams.)
But that’s sports. Betting against the odds in life can be financially fatal.
If history is any indication, here are five likely realities. Betting against these things can cost you big time.
1. You won’t save enough money. I help people prepare for retirement. Not many say to me, “Wow! I’ve saved too much dang money! How will I ever spend it all?”
Yes, a few fortunate souls sell businesses, strike oil (or gas), or inherit money. Good for them! But my typical clients understand that they will need to optimize every part of their financial life if they hope to retire with a similar lifestyle.
We can usually make that happen, but along the way I often hear, “I wish I’d started earlier,” or “I wish I’d saved more.”
2. The stock market will grow over the long-term. Legendary investor Peter Lynch made a speech in 1994, when the Dow Jones Industrial Average was about 3,800, in which he said:
“Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs.…Basic corporate profits have grown about 8% a year historically. So…the stock market ought to double about every nine years. So I think — the market is about 3,800 today….So, the market ought to double in the next eight or nine years… again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow.”
Following Lynch’s math from 1994 to now, the Dow should be around 31,500. It’s actually north of 35,000 as I write these words.
3. Economic catastrophes will be overcome. “But what about…Ukraine, inflation, a weak dollar, a strong virus, rising gas prices…” The list of unpredictable things that can cause markets to wobble in the short term is long. But history shows us it’s a pretty good bet that great business minds will continue to find ways to solve the surprises and crises thrown at us.
4. You will retire one day. Some people can’t wait to retire. Others see retirement as a punishment. Regardless of your perspective, the odds are that you will quit working one day. It may be on your terms. Or it may come in the form of a medical diagnosis or a pink slip. Since we can’t see into the future, it’s wise to have a plan.
5. You will die one day. The odds of death are 100%, as sure a bet as anything on earth. So rather than foolishly denying or defying those odds, it’s smart to plan.
I’ve walked alongside many new widows (and a few widowers). You cannot imagine how much better things are when there is adequate life insurance and when up-to-date estate documents (wills, trusts, etc.) have been prepared ahead of time.
Don’t skip this or let someone tell you it isn’t necessary. I regularly see the results of neglecting these matters. It isn’t pretty.
As much as we loved rooting for the Peacocks this year, their magical run came to an end. The odds finally caught up with them.
The odds eventually catch up to all of us. Don’t bet against the odds. Plan and prepare. Please.
To help you think through such issues, I’ve created a comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free if you’d like a copy. Just email me at email@example.com, and I’ll send it to you right away.
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