We are captivated by events in which small, ordinary actions produce extraordinary results. In the financial world, this delight and wonder is often directed toward compounding, the way invested money can seemingly multiply itself. But sometimes we are so intrigued by the extraordinary aspects of compounding that we overlook the ordinary actions that are essential.
Five years ago, Kirk Cousins was selected by the Washington Redskins in the National Football League’s draft of college players, with the idea that he would serve as a back-up to starting quarterback Robert Griffin III. Here were the annual salaries in his four-year contract:
Thirty-five years ago, a financial professional having an introductory discussion with a customer might ask: “Do you think you can count on Social Security still being around when you retire?” Quite often, the answer was “no.” It was common knowledge that Social Security was under-funded, and destined to go broke.
There is a school of thought among some financial professionals that says “To make money, you have to be willing to lose money,” by investing in volatile and non-guaranteed financial instruments, such as stocks, bonds, mutual funds, ETFs, limited partnerships, etc.
Just because you have a plan doesn’t mean it will work.
An integral feature in many personal financial programs is a projection of future accumulations, and the retirement income this accumulation could provide. This projection is derived from a combination of the number of years (to accumulate and decumulate), the amount of money (either deposited or withdrawn), and the rate(s) of return that will be applied to those amounts.
Both the English and Metric systems provide accurate measurements of distances, weights and volumes, but most Americans find it difficult to convert from one system to the other. For example, how far is a 26.2-mile marathon in kilometers? Even if you know that a mile equals 1.6 kilometers (and many Americans don’t), and that a 5k race is the equivalent of 3.1 miles, the ratio of 1:1.6 just doesn’t lend itself to quick conversion. (The answer is 42.2km).