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:

• It is true that the average life expectancy in the UK is about 80 years.?
• But the average is of little relevance to you.
• You are not a hard drinking, manual worker who smokes whenever they can and eats lard morning noon and night.?
• They are included in the average.?
• Nor do you take illicit drugs or throw yourself out of planes or down mountains.?
• They are included in the average.
• You are above average so must ignore the average.
• You must also ignore your parents and grandparents.
• They worked longer hours in worse conditions than us.
• They breathed poor quality air (smoking, leaded petrol) and water and food quality were below the standard today.?
• Medical science was from the dark ages.

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.

Boring But Effective