Our office will soon move to our new location, a fully remodeled former government building. The project is extensive due to our need for a larger conference and event center. We also needed to bring it to current code and efficiency standards. One of the first things to go was the bullet-proof reception area in the main entrance. I suppose if you are running a not-always-popular government agency, having bullet-proof glass between your staff and your sometimes-unhappy customers might make sense, but it wasn’t the image we wanted to project.
As we began removing the heavy glass and thick metal frames, complete with the secure tray through which documents could be safely passed, we noticed something interesting. Apart from the window structure itself, the rest of the wall was completely unprotected. Built of wooden studs and sheetrock, the walls surrounding the bullet-proof window were anything but bullet proof. In fact, one worker easily put his fist right through it. For nearly 20 years, government workers felt safe in this building behind their bullet-proof glass barrier, but in truth, their safety was only an illusion.
Many investors list “safety of principal” as a prime goal. I often wonder what people are expecting when they make that request, and realistically, do they actually believe it is possible?
Investment salespeople commonly use words such as “safe,” “risk-free” and “guaranteed” when describing their products. I have even heard the expression, “This investment is bullet-proof.” But is true safety possible? Can an investment really guarantee no loss of principal? The answer will depend on how you define “principal,” and if you are making allowance for extraordinary circumstances. For example, if your bank savings earn less than the rate of inflation, the dollar amount of your account is technically “guaranteed” (up to limits), but there is no guarantee what those dollars will be worth. So, is your principal guaranteed, or isn’t it? I would say technically yes, but practically no. Nor is cash locked safely in your home safe or under your bed truly safe.
Insurance companies offer products that guarantee principal, but those products depend on the claims paying ability of the insurer, as well as being subject to inflation risks. Even government guaranteed investments have risk. I have a nice collection of 2000-year-old Roman coins, all of which are backed by the full faith and credit of the Roman government. History teaches much about government guarantees.
An investment is like a building. There is no such thing as completely safe. It needs to be monitored, maintained and remodeled from time to time. It needs its systems, including security, to be reviewed regularly. There is no perfectly safe way to fully protect your investment portfolio. It requires continual vigilance to try to grow it enough to at least stay ahead of the many risks that are constantly trying to eat away at it. Far too many investors live their lives behind financial bullet-proof windows thinking nothing can hurt them when, in reality, their safety is largely an illusion.
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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