In 2001 congress passed the “No Child Left Behind” (NCLB) education bill. The bill was designed to hold schools more accountable and did so largely by increasing the focus on improving standardized test scores. With the ultimate “stick and carrot” of the program being money in the form of federal funds (isn’t it always), schools had a high incentive to do whatever they could to boost those test scores.
From a practical point of view, the initial reaction to the bill was to spend more time “teaching to the test” in the classroom. Many educators and parents resisted, claiming success in education and life did not revolve around test scores but in the end money won out, as it usually does. For 14 years NCLB created an educational environment where normal childhood development fell victim to the drive for better test scores. One of the casualties of this law was school recess. Recess time was cut, and in some cases eliminated, to make more room for a few more minutes of study.
What makes sense on paper often does not always work in real life and such was the case for NCLB. Without going into all the research, the end result of the law was that from 2006 to 2014, College entrance exam scores fell across almost all demographics. Having failed its purpose, NCLB was replaced in 2015.
In recent news, several states are doing an about face and are advancing legislation requiring schools to provide elementary students with recess time. Specifically, recess is to be unstructured and separate from PE classes or lunch breaks. It is a time when kids are simply free to be kids. Numerous studies of the past 15 years have shown that kids actually do better in schoolwork if they are given occasional breaks to play.
I have worked with many investors who seem to have the impression that the more they agonize and worry over their portfolios, the more money they are going to make. Like the writers of NCLB, they have lost some of the balance in their lives. I often tell these people to turn off the TV, close the computer, take a cruise or just go golfing. I have not done any scientific studies but I have worked with enough people to be very confident in my opinion that there is no correlation between investing success, and spending an excessive amount of time worrying about it. We all need a real break once in a while.
Recess has been shown to play a critical role in a students’ success at school. It makes sense that taking regular breaks from your financial worries as an adult would be equally important, and will give you a clearer perspective when you return. Investors can learn a lot from the lessons of NCLB, and families and marriages will likely benefit too from a regular and unstructured financial “recess.” However, sitting on a beach while checking stock prices on your IPhone does not count.
Launa and I had the opportunity to accompany a wonderful group of youth on a camping retreat designed to help them strengthen their character. One event, which stood out to me, involved an experience with a pipe mounted about three feet above the ground, like a fence rail, that led into the woods.
One dark night we were asked to hold to this rail and follow it, one person at a time. At the end we were promised a great reward. When my turn came, I grabbed the rail and walked off into the darkness. The ground underneath was a bit uneven and from time to time there were tree branches brushing against my face. I could tell the path led by a river as I could hear the sound of the water rushing by.
At one point the rail turned and crossed over the river. It was very dark and there was even some manufactured fog that made it impossible to see anything other than the part of the rail I was holding to. Underneath my feet I felt wooden planks but could not tell how wide they were so I held even more tightly to the rail, lest I should slip and fall in the river. This journey through the woods lasted a couple hundred yards until I reached the promised reward, where I was pleased to find all our youth assembled, safe and happy.
The message of the experience was that life is full of dangers and that to make it through safely we need to have a good path and something solid to hang on to that can lead us, like the rail. As one who values long term financial planning over short term investment picking, I found this experience of holding to the rail through life to be of great worth.
I thought about the investors I have worked with and contemplated some of the rails they might hold to that could assist them in a financially successful journey. Some of them are:
-Know in advance what you want your retirement to look like. Before you grab that rail, know where it leads.
-Plan how to get from where you are to where you want to be. Have short, medium and long term investing goals and track them.
-Be honest about your ability to actually obtain your goals. Too many reach their 40’s with little or no savings, yet still expect to retire comfortably at 65.
-Learn all you can about investing, or find someone you trust to do it for you, then never stop learning. Relying on luck is like letting go of the rail as you cross the river.
-Sacrifice today so you will have what you need tomorrow. Daily sacrifice is an essential rail to any future success in life.
-Finally, when the investing world gets unsteady, or the branches hit you in the face, hold tight to the rail. Impulsive action has caused many an investor to slip into the river of financial loss.
I enjoy collecting ancient coins because I love history as well as the financial lessons old coins can teach. Many of my coins are from ancient Rome and as such are engraven with the image of Caesar. This was appropriate since coins were largely invented to benefit the ruling class. It gave the ruler control over the economy and facilitated the collection of taxes. (The palace could only hold so many chickens and goats) With control of the currency, Caesar could basically create all the wealth he wanted. He could also, by use of taxes, order that wealth transferred back to himself. I actually have a solid silver denarius with the image of the biblical Ceasar Augustus on it, who famously ordered that all the world should be taxed. I look at that coin today and wonder if some poor soul might have once painfully paid his taxes with it.
As the Roman empire grew so did Caesars’s army, and the need for more silver to pay the soldiers. Unfortunately, silver was in short supply and so Caesar cleverly decided to reduce the amount of silver in each coin. By the 3rd century AD, the once respected Roman silver denarius went from being 95% pure to only containing a thin silver coating over a copper coin. Does a silver plated copper coin sound familiar? No longer holding any intrinsic value, the Roman denarius was accepted and traded only as long as people had faith in the government that backed it. It should be no surprise that under these conditions the various Caesars struggled to maintain the loyalty of their troops, who knew they were being paid with phony money.
I am often asked how much cash a person should hold. This is a difficult question since most people really like cash. Cash is fun. Cash is liquid. Cash feels safe. But there are definite downsides to cash. Cash does not grow. In fact it shrinks daily with inflation. Cash is bulky and not always easy to carry around. Cash can be stolen and is difficult to recover if it is. Many hold their cash in safe places like a bank or brokerage account but these cash hoards are also subject to many of the same downsides as holding physical cash. Over time the spending power of cash tends to erode.
My advice is to recognize that cash in all its forms has no intrinsic value. Like Rome of old, its perceived value fluctuates with the strength of government. As more currency is created, and as governments struggle with massive debt loads, the currency in circulation is at risk of losing perceived value. Ironically, though conservative investors often view cash as a safe haven, the opposite may be true. Be careful about holding too much of your portfolio in cash for extended periods of time. As we can learn from the Romans, currency backed by the full faith and credit of any government is not always as safe as one might hope.
A reader this week accused me of being less than truthful in my last column. I was startled and wondered which article he might be referring to. He then said, “There is no way you are still riding roller coasters at your age.”
Relieved that he was only challenging my theme park experience, I laughed and assured him that on two issues it was he who was incorrect. First, I do in fact love riding roller coasters and have yet to lose the contest the kids and I have every year when we visit one particular park. We ride non-stop coasters until one of us gets sick and quits. Flying into St. George on hot summer afternoons provides me an advantage with lots of great motion sickness training.
Our family is always looking for great coasters. I remember the first time we drove to Six Flags to ride the brand new ride, “X.” It was a unique coaster that placed the seats outside the track, allowing 360 degrees of rotation in addition to the normal ups, downs and loops. It was an exhilarating experience and the long line to the ride spoke for its popularity.
As we left X, I noticed another coaster nearby with hardly a person in line. It was Revolution, the first modern inverted coaster which opened in 1976. It was a nostalgic moment since my own father had taken us to ride Revolution when it was brand new, and at the time, we had happily waited in a very long line. Like so many other great rides of the past, the once thrilling Revolution had lost its thrill.
It is human nature that as we become accustomed to anything, the attraction tends to fade. Movies that scared me as a youth seem a bit like comedies today. Coasters that once frightened me, I now find boring. Humans are very good at adjusting and as we adjust, we seek a higher level of excitement.
This human ability to adjust can become a point of concern for investors. Risks that might have once frightened can seem commonplace with continued exposure to them. Like a gambler that continually increases his bets, investors can become increasingly comfortable with risk. If they are not careful, they may find their portfolio taking on risks they once considered unacceptable.
One of the benefits of getting an occasional second opinion is to have a set of fresh eyes look at what you are doing to see if you are overlooking inappropriate risks that you have merely become accustomed to. Moving on to faster coasters is harmless since, as I discussed last week, they only present an illusion of risk. But investing carries real risks and getting too comfortable with risk can result in a real hazard to your retirement.
Oh, and the second issue the man was incorrect on. I am really not “that” old.
My family enjoys theme parks and one of our favorite rides is the roller coaster. Coasters come in various sizes and intensity levels but they all have one concept in common. They push the limits of excitement to the point the rider has a sense of imminent danger, but the danger is merely an illusion.
In 1976, my Dad took us to the king of roller coasters, Six Flags Magic Mountain, to ride the newly opened – Revolution. Revolution was the first modern coaster to perform a vertical loop and the ride did not disappoint. We kids screamed the first time we experienced inverted coaster riding and ran as fast as we could to get back in line to ride it again.
Years later in 2002 I took my own kids to Six Flags to be some of the first to ride the newest extreme coaster – X. This coaster was light years ahead of Revolution in many ways, but its main feature was the placement of the cars to the sides of the track, giving the rider the feeling of being suspended in mid-air. This also allowed the seats to rotate 360 degrees, creating sensations coaster enthusiasts had never before experienced.
X began by climbing the first hill backwards, then as the seat rotated to face you straight towards the ground, it dropped 200 feet. Just before the apparent impact the seat would rotate allowing all the G forces to be absorbed while on your back. The sensation was like nothing we had ever experienced, and the thrill met all expectations. As the ride ended the kids and I, having just “faced death” and lived to tell about it, ran to get in line again.
The commonality among coasters is the perception of risk. Last week I discussed how safety in investing is largely an illusion but risk in investing can be an illusion as well. Like a great coaster that creates the impression you are about to plunge to your death, investors increasingly face the same false sensations in investing.
In our media driven world we are continually barraged with disasters. Foreign countries threaten to annihilate us. Terrorism strategically raises its ugly head to inspire fear. Politicians and pundits act as if Washington is on the brink of chaos. Cyber-attacks make people afraid to turn on their home computers.
There is a colloquialism that says 95% of our worries never come to pass. I don’t know how statistically accurate that is but it seems to be a pretty good description of investors. From my experience the vast majority of news that frightens investors ends up being much more fizzle than sizzle. One need only look back over the years at all the disasters, real and imagined, our nation has faced and realize that we have survived them all, and thrived. Risk truly can also be an illusion.
There is much we can learn about life from a great coaster. Perhaps we should start by worrying less and spending more time enjoying the ride.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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