What are the greatest threats to your long-term success?

Oct 21, 2019Intentional Ownership

I try not to be an emotional person, but I must admit it’s not easy. I’ve had to temper how much news I consume because it drives me crazy. As a professional in the investment industry, it’s hard. I don’t just have to stay calm for me; I have to stay calm for my clients.

I think it’s important to know, I hate periods of increased volatility just as much as you do. I, however, have a secret weapon. I know the real dangers in what you own for the long‑term, and they have nothing to do with what the loudmouths in the news media are discussing.

Every news channel you watch, every newspaper you open, every blog post you read, will lead you to be concerned about something. I have yet to find anyone talking about the real threats. Those threats are not found in the daily price movements of a diversified portfolio.

There are three very real and very big threats that you have to be aware of if you’re going to have a chance to succeed.

The first threat is your own life expectancy. Medical technology and science have brought us to a place where it’s not uncommon to see someone live 90 years or longer. In fact, the research publications I read, advise that for every plan we run, we should build expectations for at least one member of each family to live to at least 95 years of age.

Interestingly, people still consider retiring sometime around 60 years old. If a family enters retirement at that time, they’re facing likely 30 years of increasing costs. How will you be prepared to survive those 30 years?

I imagine decreasing your lifestyle during that period of time is the last thing you will want to do. Those remaining 30 years are a long time. It’s important to note, if you don’t pay attention to this threat when you’re younger, you will likely have to make hard decisions later in life, at a time when you will be less capable of making them.

The second threat is inflation, which I like to call “The price of milk and eggs.” Every time we go to the grocery store, this is apparent. I remember when I was a young kid, walking into a small‑town grocery store and buying two candy bars for a dollar. I don’t think I can even get one candy bar for a dollar today; that’s inflation.

If you’re looking to build a long‑term plan to support you for the rest of your life, how are you going to overcome this threat? If you combine this with the life expectancy threat mentioned above, it is a perfect combination that can do real damage to your long-term plans. Over the next 30 years, how much will the cost of your expenses increase?

Will the portfolio you own allow you to stay ahead of inflation? The only way to stay ahead of inflation significantly, over the long run, is by owning a portfolio containing great companies in the United States and around the world.

The third threat, most people ignore, is taxes. Each year, depending on how your portfolio is managed, there’s the potential of a tax bill.

Every dollar you pay out in taxes, is a dollar not working for you, for your lifetime. Never underestimate the power of the compounding interest on that lost dollar.

It is important to pay attention to how you structure and put together your portfolio. Some of the things you own will have a much higher tax burden than others. There are times when the individual performance may look wonderful but, when considering its after‑tax return, is only mediocre.

Having a professional who can walk beside you and help you manage this threat will bring more benefit than most people can measure or imagine.

Each time you encounter the media, they are trying to convince you of what you need to be concerned about. Unfortunately, they are often missing the true threats. In looking out for yourself, make sure if you’re going to be concerned about anything, you’re concerned about the right things.

At Paradiem, we hate “investing” and think you should too! We are not just investors; we are OWNERS and we believe WHAT you own and WHY you own it is a much more important consideration. If you would like more information on the importance of understanding what you OWN, email [email protected] with the subject “Ownership” or give us a call at (985) 727-0770.