Longevity vs Volatility
We fear longevity too little and volatility too much.
You will be in retirement more than 10-15 years, here is why:
Overall, I expect you will celebrate your 95th birthday. We must accept and plan for your accumulated wealth having to support you for 30+ years.
Over the last 30 years, inflation has precisely halved the value of ￡1. ￡1 today buys you half of what it bought you in 1992. If your wealth does not keep pace with inflation, you become poorer, life diminishes, you can help fewer. That is financial insecurity writ large.
But this is easily avoided.
￡1 could have easily become ￡7.50 over the last 30 years. By being the owner of the biggest and most successful companies around the world, you can buy 6.5 times more today than you could in 1992. Little by little you would have got wealthier allowing you to do more and help more people. That is financial security writ large.
There was a “cost” of achieving such a phenomenal outcome. From time to time your accumulated wealth temporarily dropped in value. It happened in 8 out of the last 30 years. Despite those temporary declines ￡1 still became ￡7.50.?
That “cost” pales into insignificance compared to the actual cost of losing half your money.
Fearing something that happens 25% of the time (8 years out of 30) whilst ignoring what happens 75% of the time is costing you life.?
Embrace volatility, make it your friend and you need never fear running out of money. And accept longevity – you are going to be here much longer than you think – that’s the real risk you face.
Helping financial advisers with their ongoing investment suitability, investment DD, investment research and investment commentary. Champion of Independent & genuine WoM investment research
1 年Great article. Also remember capital volatility, market and income volatility are quite different. As we saw with one of our solutions the 5% income (real income) only fell 1.5% peak to trough during covid. This was despite 40% of income being wiped off the all share. Obviously not selling units (fake income) also increases longevity ?? great article
Founder of Chiltern Hills Financial Planning, Senior Partner Practice of St. James's Place Wealth Management
1 年Jeremy Askew FPFS you killed me woth “you don’t eat lard”! ?? It’s great that we help clients gain a better balance betweeen future and present self. and especially as this relates to reactions to our long-term investments… The prospect of longevity is a scary thought for many (including me). Rather than fearing outliving my money: I most fear living in a state that you can see in 90+ relatives ?? The key to good decision making is balance… which as you rightly say involves considering future self and getting comfortable with volatility
Senior Lecturer in Finance At Kingston University
1 年Great article.
Chartered Financial Planner at Barrington Hamilton | Looking beyond your finances and focusing on you: your story and your life goals
1 年Great article Jeremy.
Owner & Financial Planner, Interface Financial Planning Limited - Helping clients achieve meaningful lives
1 年Superb article I read it three times and saved it.