My dad was an orphan and spent his youth in the St. Francis home for boys in Detroit. The home was a safety net for boys, but it was far from an ideal upbringing. The trials, loneliness and sometimes abuses of that home left indelible marks on his life and taught lessons he worked tirelessly to teach his children.
When I left for the university my dad encouraged me to study history and philosophy. He said that philosophy would teach me how to think, and history would teach me what I should be thinking about. I followed that advice and one day in philosophy class my professor asked us to come up with a single phrase that could be applied to every aspect of our lives. The following week I turned in my assignment with this phrase, “Everything has its price.”
My dad taught that every decision had a price and that every action required giving up something else. In investing we call that “Opportunity cost,” meaning when you spend $10 on a meal you have given up whatever else that $10 might have done for you. The price of the meal is the loss of the $10 while the price of not buying the meal may be hunger. It is our choice which price we pay.
When people retire they bring with them the evidences of the various prices they have paid throughout their lives. Some have paid the price of sacrifice, having faithfully put off current wants for a better future. Others, for whatever reasons, decided they could not “afford” to set aside money in their youth, or they did not have the discipline to do so. They failed to pay the price to assure their financial future, and so in their old age they are paying a different price. Young people often mistakenly think that financial planning is optional. Barring a personal disaster, your future will absolutely come. The question is, do you want to plan for it or do you want to let life plan it for you? In either case there will be a price to pay.
History shows a strong tendency for people to seek returns without paying the full price. Our national obsession with gambling is clear evidence of this. Politically we continue to run up massive deficits, giving further evidence of our thirst to obtain benefits we aren’t willing to pay for. Even intelligent and successful investors are not immune to this human tendency.
We must be ever on our guard against the temptation to try and obtain something we haven’t fully paid for. It is one reason even successful individuals can make bad investments decisions or even worse, get sucked into fraudulent schemes. Always remember that everything in life has a price. If you are tempted to try and bypass the price, or take a short cut, be aware that some other price for your decision awaits down the road and you may find it is more than you want to pay.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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