When you come to a stop sign and look both ways, which kind of intersection is most dangerous?
I was driving recently with a friend and we came to an intersection where you could see for at least half a mile to both the left and the right. He commented that his father, a police officer, had told him that this was the most dangerous kind of intersection. Despite being able to see clearly and far in each direction, there were more collisions at this kind than any other.
Because people look into the distance and see nothing. They miss the car close in. I have paid attentions since and I think it is true.
It is also true with financial plans and especially the saving/investment part.
People will go far out of their way for a difference of 0.5% yield on their $200,000 portfolio. Despite their being no guarantee that any new advisor will do better, or any exotic investment will do better, they change. Yield is the road in the distance. They miss the close in opportunity.
Half a percent on $200,000 is $1,000 per year more.
Your future accumulation is a function of three facts. Yield, capital invested, and time. If we leave time constant and choose to impact yield or capital only, then $1,000 of additional capital is worth the same as the time trouble and risk to change advisors or investments to gain half a percent extra yield.
Would it be easier to find the $1,000 within your everyday spending and then save it? $83 per month.
I decided to experiment with our spending. $83 was easy. Two magazine subscriptions that we no longer read. A call to the bank to change the way they charge their monthly fee. A survey of automatic credit card charges and the resulting dismissal of three unused services. Two of them were easy and the other I had to think about a bit. Easy money. Every month.
It is easy to lose track of little things when doing your plan. Yield matters over a long time, but it is complicated and esoteric. But there are also the close in things. Be sure you have tidied up the little monthly expenses before you try to make changes to the long factors.
This brief blog article draws on two of the people I find helpful when assessing leadership. John Wooden and John Maxwell. The title alone is useful if you cannot click through.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.