A Simple Guarantee

October 05, 2023

In the financial services world, few words are more taboo than “guarantee”—and with good reason. We live in a world of probabilities, where nothing is truly risk-free. Advisors who claim otherwise mislead their investors. Investors who believe otherwise are simply naïve.

Some people will probably take exception to my statement. They might argue that their insurance payout is guaranteed, or that their Treasury Bills are guaranteed by the full faith and credit of the U.S. government. But those guarantees are built on a set of assumptions. What happens if those assumptions do not hold?

For example, what if the financial markets were to implode, wiping out the financial reserves of your insurance company and the other companies supporting it? You might say that such a catastrophe is so improbable that it isn’t even worth discussing. That could be the case. But what about scenarios that aren’t so far-fetched? What happens if the Federal government endures a protracted shutdown, and your “safe” Treasury Bills can’t be redeemed because the government lacks the legal ability to issue new debt? Again and again, our political leaders in Washington dance along the edge of that precipice. Though we don’t like to think about it, it is worth considering what could happen if we accidentally slip over the edge.

My point is to highlight that the word “guarantee” is fraught with peril—especially in the financial markets. As soon as we use it, we set ourselves up for trouble. That said, I’m going to go out on a ledge and say this: if people spend like there is no tomorrow, they will get exactly what they pay for—no tomorrow. At least, not the kind of tomorrow they hope to enjoy. That is guaranteed.

A recent Wall Street Journal article highlighted the ongoing strength of consumer spending. Despite high interest rates, stubborn inflation, and dwindling savings, household spending in August was up 5.8 percent compared to a year earlier. Consumers are literally spending like there is no tomorrow.

According to the article, consumer spending has made a marked shift toward the experiential—meaning people spend less on things and more on once-in-a-lifetime experiences. The article includes vignettes from four young households, each bucking time-honored financial principles to live for the moment. One, a recently-engaged 30-year-old, frustrated by the rising costs of homes (see last week’s column), decided to pull the plug on that dream. He spent a large portion of his savings on a $1,600 Taylor Swift concert ticket and a bachelor party in Ibiza, Spain, telling the Journal, “I might as well just enjoy what I have now.” If his fiancé were my daughter, I’d encourage her to pull the plug on him. With that kind of philosophy, that guy is going nowhere.

Another young couple in their 20s, after attending back-to-back funerals a few months ago, decided that saving for retirement or purchasing a home is less important than working through their bucket list. “All the rules that exist around money and lifestyle are just things people made up,” they claim. “So, we’re playing a different game, and honestly I think we’re having more fun.”

I have no doubt they’re having fun, but I can almost guarantee (there’s that word again) that they are headed for financial disaster. Sound financial principles are not things people just “make up.” They are very often hard truths learned by those who suffered the unpleasant consequences of “playing a different game.”

Which brings me to my point: success in life comes from living by correct principles. If you want a successful life, align your day-to-day decisions with time-honored truths. While this applies to financial decisions, like savings and investments, it also applies to decisions about your career, your consumption, and especially your relationships. Principled living takes discipline—often requiring us to forego near-term pleasure for long-term gain—but it is the most secure path to success. I guarantee it.

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Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to smerrell@montereypw.com.