What you see is (not) what you get
Published on -8/24/2014, 2:30 PM
"I've got some ocean front property in Arizona. ... If you buy that, I'll throw the Golden Gate in free."
The lyrics of George Strait's No. 1 hit set the theme for this month's session.
Part I: Imagine for a moment you are planning a trip that requires a flight to somewhere. You begin checking the price of flights, and ordinarily it would make sense to opt for the cheapest price. So for example, round trip to China for $49. Sounds like a great deal. Oh, but if you'd like to take shoes along, that will be an extra $50. If you wear glasses, add $75 additional dollars. Clothes (that you wear on the plane), are another $50. And if you decide to take a third bag -- don't, as you can buy the items cheaper at your destination than paying the exorbitant extra baggage fees. Possibly a bit of an exaggeration, but the point being, shop around, as the initial marketing cost might be a small part of your overall expense.
This same philosophy can relate to motels. And it does not get better in other countries. Canada, for instance, has a seniors rate, accommodation tax, (whatever that is), provincial tax, goods and services tax, heart a(tax), thumb tax, etc., which would make a $90 room cost more than $140. The only way to avoid some of these costs would be to stay home.
In doing your due diligence in shopping for an item, it'd probably be wise to stay away from the following phrases:
* "The world's best-selling." (Let's face it, everyone can't have the world's best-selling product.)
* "The invention of the century." (Really.)
* "Millions have already taken advantage of this." (Let's see the names of those millions.)
* "Buy in the next 10 minutes, and we'll give you the Golden Gate Bridge." (What would you do with a bridge that big?)
* "The 50-year guarantee" (Most of us won't even be here.)
Part II: On this same trip you're planning, you check the weather on different locations and find the place you'd like to visit has an average temperature of 80 degrees. But upon visiting this oasis, you find it's 120 degrees one day and 40 degrees the next, and alternates like this every other day. Although this average still can be marketed as an average of 80 degrees, you find out it's less than the favorable weather you expected.
The stock market can work in a similar fashion. One year, it might be healthy, and the next year a substantial correction might occur. And yet the average rate of return might not tell you the whole story. Since 2008, we have had a strong market. The people, supposedly in the know, will tell you there's a correction on the horizon. They are correct. There will be a correction, as historically we've experienced one on an average of every three years. You could predict it eventually will rain in western Kansas, and at some point, you would be correct about this prediction also. The question is, however, how far away is that horizon? Does the prediction come true five years later?
There are two problems with this emotional timing -- related decision. One, if you get out of the market, then you will need to know when to get back in. No one accurately can predict exactly when to get in and out of the market.
Secondly, many people look at their time frame on a retirement plan, for instance, as now until the time they retire. Unless all the retirement dollars are going to be spent the first day of retirement (that'd have to be a heck of a retirement party), these dollars need to last until the day you die. So if you are 64, for instance, and retiring at 65, the appearance of a one-year time frame actually is from now until the end of your life -- and your dollars should be invested accordingly.
Part III: In the state of Kansas, to drive without car insurance is against the law. But to live without life insurance is not. With many people, and the responsibilities they have (kids, house and car payments, etc.) along with the little life insurance they own, apparently they don't plan on being dead long.
Tim Schumacher represents Strategic Financial Partners