Jumping to Conclusions

in Retirement Savings, Risk

One of the biggest peeves that I have is folks’ inability to listen to a problem description completely before leaping to a conclusion. Given I work with engineers, mathematicians and the like, they can generally be described as “problem solvers”, and they enjoy showing that they can get things done.  Unfortunately, many times they jump to the wrong solution because they have not really listened long enough to figured out what the problem was in the first place (they have not taken the time to listen first and then synthesize a response after they have heard all the facts).

Let’s take a good financial problem, and see what conclusion you jump to?

Say you have a friend (Harvey) who is 52 years old, and he has realized that thanks to bad planning on his part he doesn’t have enough money to retire early (or possibly at all). He was hoping to have $3 million by the time he retired, and he haven’t even cracked the $1 million dollar mark in his RRSPs, and other investments.

A quick solution that I heard one friend blurt out was the following:

“Harvey, you are going to have to take more risks with your investments to try to compensate for the slow growth you are getting currently”

Seriously, this was actually a response, and on the face of it, it sounds like a possible answer, until you think that taking the existing moneys that you have and putting them in a more risky portfolio (with leverage, or something even more hideous) just means you could end up much farther behind.

Another comment was that Harvey was going to have to “beat the market” and of course the commenter knew of an advisor who has great success achieving this holy grail of investing.  My guess is that this is where lots of investors end up; in the Beat the Market trap (as you can tell after 30 years I have seen many folks who thought they were beating the market but didn’t quite get it done).

Finally, I mentioned to Harvey that another solution might be to start saving more money now, and/or paying down debt faster and maybe altering his lifestyle so that he could have a larger retirement fund later.  If neither was  possible, then simply abandon the idea of retiring early, and just stay diligent in your saving plan.

Which idea makes more sense? Oh and yes the Jump to Conclusions title is a reference to one of my favourite movies Office Space.

Office Space

The Jump to Conclusion Game (Click on it to go to Amazon to buy this Great Movie)

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

{ 5 comments }

{ 5 comments… add one }
  • Marc N November 15, 2013, 1:34 AM

    I’m surprised that nobody questioned Harvey about why he thinks he needs $3M to retire on. Has he made all the calculations including what he’ll be getting in terms of CPP, OAS, etc.? Other expenses such as mortgage will be gone too – I think MoneySense usually quotes that couples should be able to retire on 50-60% of their income while they were employed, single people about 60-70% (to enjoy an equivalent lifestyle).

    Reply
    • bigcajunman November 15, 2013, 6:42 AM

      I believe the Moneysense numbers assume you have your house paid off and you have little or no consumer debt too (which might be a little optimistic).

      Reply
  • Donny @ Personal Income October 30, 2013, 3:27 PM

    Jumping to unnecessary conclusions ruin many relationships in today’s society. It is bad to make assumptions without having a conversation with the person that you are making the assumption about.

    Reply
  • Michael James October 30, 2013, 9:30 AM

    Live on less? Work longer? Who wants that noise? Penny stocks, baby! If you could go back in time and choose the right stock, all problems would be solved. Without time travel I guess you have to go back to living on less and working longer. Sigh.

    Reply
    • bigcajunman October 30, 2013, 9:51 AM

      First thing I am doing when I get my time machine is SELL Nortel in 1999, and putting it all in Canadian Banks, that is how to have gotten rich by now (that’s as close as advice you’ll ever get from me, but it is correct too).

      Reply

Leave a Comment

*

%d bloggers like this: