3 Things 5-9

05/09/2022 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One The Rule Of 72 Held Up To A Mirror We’ve written on more than one occasion about the rule of 72, which says if you take a given rate of return and divide it into 72 you will arrive at the number of years it will take for an investment to double. For example, if you invested $1,000 today and assumed a 7.2% rate of return, in 10 years (72 ÷ 7.2 = 10) you’d have $2,000. That’s the upside of the famous rule. The downside can be seen by applying the rule to inflation. Thus, if you had $1,000 and the rate of inflation was 7.2%, ten years from now, although you’d physically still have $1,000, its purchasing power would be $0 due to the compounded effects of inflation. Currently, the inflation rate is around 8.5%. The math there says it wouldn’t even take ten years for your $1,000 to be completely worthless. Thankfully, most of the people who get paid to prognosticate about inflation seem to expect the rate to recede to something more in the range of 3 to 4 percent for the long term. But at that rate, you will need somewhere between $1,344 and $1,480 ten years from now just to break even with the purchasing power you have today. If you get confused about what the implications of that are, remember TINA.

Thing Two Revisiting Some Old, Non-Financial Concepts Long ago, in a different work life, I was taught about two ideas related to expectations and attentiveness. I’d like to change gears here and briefly share that lesson. The Pygmallion Effect essentially holds that people tend to live up to the (real) expectations of others. Our employees, our politicians, our school administrators, and so on, tend to live up to our expectations and vice versa. The Hawthorne Effect essentially argues that if people think you’re paying attention to them, they will tend to behave differently because the fact that you’re watching closely signals to them that the results of whatever they’re doing matter. The combination of the two effects can be powerful. In my recollection, the moral of the combined (Pymallion and Hawthorne) stories is that you don’t get what you expect from people but what you accept. Got problems with your employees, your elected representatives, or your kid’s teachers? Make sure they know you’re paying attention, make your expectations clear, and don’t accept less than what you expect.

Thing Three Just A Thought "The fact that so many successful politicians are such shameless liars is not only a reflection on them, it is also a reflection on us." - Thomas Sowell