3 Things 6-21
06/21/2021 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 A Tale of Three Savers It was the best of savers and the worst of savers and the folks at JP Morgan have put together a chart (below) that illustrates it clearly. Susan started saving $5,000 a year when she turned 25 and stopped when she was 35, having contributed $50,000 to her savings account. Bill got started a little later in his saving. When he turned 35, he began saving $5,000 a year. But, unlike Susan, he never stopped putting it away at that rate until he retired at age 65. He managed to contribute $150,000 over 30 years. Chris got started saving $5,000 a year when he turned 25 (like Susan) but kept right on saving at that rate for the next forty years. By the time he was done, he had contributed $200,000. Below is a picture of what happened to their accounts assuming a 7% average annual return; Chris, is the clear winner in the savings game, having started early and stayed with it. Notice he has at least double the amount of either Susan or Bill at age 65. But also notice that Susan, who only saved $50,000 of her own money ends up with more than Bill, who saved three times that amount. That, my friends is the power of compound interest and time. You need them both to maximize your retirement savings.
Thing Two Targeting Is For Show, Not Results I was recently browsing health and fitness websites for exercise "secrets" when I came across an article that started me thinking about the similarity between an individual getting himself into physical shape and a politician trying to get the economy into shape. The article was called, "Why Crunches and Sit-Ups Do Not Get You Six Pack Abs". The first few paragraphs are what stimulated my parallel thinking on the subject. They read: "Doing countless crunches and sit-ups are by far the most common exercise mistake for anyone who wants to slim down their midsection. The thought is that doing hundreds of crunches and sit-ups will work the abs so hard that the fat covering them will disappear. If this were true, you would see people walking around with toned and defined abs and a soft and flabby body everywhere else. Here’s something to think about: we’re always focusing on the abs but have you ever noticed that the people who have the best abs also have a great body everywhere else? This is by design – not by coincidence. The idea that doing lots of crunches is going to get you six-pack abs is a myth that is known as “spot reduction”. Fat burning is not a local phenomenon. When you do bicep curls your biceps do not pull fat from your arm for energy, so why would crunches reduce the fat around your waistline? More on that soon. If you want to see your abs then know this: It all comes down to the basics of losing body fat, calories in versus calories out......." Makes all the sense in the world. Now think about the government's exercise plan. If we increase the pay of all low-wage workers to $15/hr, all our economic woes will disappear. Or, if we make rich people pay more taxes, the economy will be better for everybody, right? Of course not. Those kinds of spot reductions will never work because they only take from one pocket of the economy and put it in another. They don't increase the total number of dollars in the economy's pants. The whole economy has to get more fit if the aim is to have its midsection (or bottom) more fit. And, as the article later pointed out, there really is no secret to getting more fit - you have to eat right and exert yourself. Seems to me that eating right, in the economic sense, would be the same as spending our tax dollars prudently (and not borrowing excessively) while exerting ourselves would be akin to raising our production levels. By producing more, we would take care of our midsection (middle class) in a natural way (more jobs and increased wages) that wouldn't have us wasting energy for little to no real benefit (other than for the people whose votes are being sought). But we would also take care of all the other parts of our economic body as well. So, how do we produce more? By encouraging investment (production) and profit-making rather than demonizing them and threatening to tax the created wealth away. Now, if we could just convince the politicians -all of them - to stop being politicians and become economic stewards instead, this could all work out. To any that would listen, we could say: "Lots of sit-ups or other spot reducing exercises are fine if you like wasting your time. Similarly, lots of targeted economic policies are fine if votes matter more to you than results. Neither is fine if you're serious about getting your body or the economy in shape."
Thing Three Just A Thought “No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems—of which getting elected and re-elected are number one and number two. Whatever is number three is far behind." - Thomas Sowell