Like many other people, I get emails.
One thing I noticed about these emails in 2020/21 is that many of them ask whether I am “staying safe”?
Sadly not…I have been involved in that dangerous activity called “life”.
Scientific studies show that 100% of lives end in death.
At primary school we learned about something called “history”, a place in the past where many interesting things happened.
For those not familiar with history, it was not always safe. There were wars. There were plagues. There were papercuts. I don’t have enough space in a 1,500 word blog post to cover everything in “history” but a lot of dangerous stuff happened, health & safety be damned.
This makes me wonder. Did we get more risk averse in recent years?
Did we come to take safety, comfort and convenience for granted? Has a cult of safetyism, an extreme form of desire for safety, taken over our schools, universities and our public discussions?
The problem with safetyism
In The Coddling of The American Mind, Haidt (a liberal psychology professor at New York University) and Lukianoff, a law professor, define safetyism as follows:
Safetyism refers to a culture or belief system in which safety has become a sacred value, which means that people become unwilling to make trade-offs demanded by other practical and moral concerns. “Safety” trumps everything else, no matter how unlikely or trivial the potential danger.
When children are raised in a culture of safetyism, which teaches them to stay “emotionally safe” while protecting them from every imaginable danger, it may set up a feedback loop: kids become more fragile and less resilient, which signals to adults that they need more protection, which then makes them even more fragile and less resilient”The Coddling of The American Mind
If you are anything like me, you got interested in money motivated by a mixture of fear and hope.
In my case it was more fear than hope. Ever since my parents took out the biggest mortgage possible and interest rates then went to 17%, I’ve always thought of being in debt as a scary thing. After that, I spent much of my life visualising myself living homeless and eating
catfood and cockroaches rice and beans to survive.
As someone smart once said: I have lived through many terrible things in my life…most of which never actually happened.
I can see The Dark Side
Monty Python famously sang: “Always look on the bright side of Life”.
But it was an ability to see The Dark Side that triggered me to save. It’s why I was always so keen to fix the roof whilst the sun was shining. But at some point we have to ask: how much is enough?
You probably have enough to never work again when you have 25x your annual spending. Or to put it another way, a a 4% withdrawal rate is probably safe.
Sometimes this sparks accusations of being too dangerous. But when I see those debates, I can’t help thinking…what about this:
Safety is a mirage
Please believe me when I say that I understand the desire for safety first in your finances.
It’s just that if you are looking for 100% safety, you are chasing a mirage. There is no such thing as 100% safety there are only trade-offs.
You can take your risk as 1) running out of money 2) inflation risk 3) the risk of loss of capital or 4) volatility. You get to pick your poison but there is no zero risk option on the menu. It doesn’t exist.
You think cash in the bank is safe? What about inflation?
As I may have mentioned before, your cash is like an ice sculpture at a party. You can’t see it melting away…but it is. With 3% inflation and 0.5% interest rates, your cash loses HALF of its value every 29 years or so. That’s pretty scary to me.
Property and the stock market grow their real value over time. Houses are generally thought of as safe because they’re the only asset class where most people sit tight and allow compounding to work its magic over decades. What would happen if we behaved the same way with a global equity index tracker?
Could I lose everything?
Someone recently asked me whether they could lose everything if they invested in a global tracker fund?
Yes, if the world ends, we could lose everything. But if that happens then who cares about money anyway? It’s possible that the sun explodes next year or aliens invade tomorrow or that Scotland win the next World Cup. No investment is immune from alien invasion, end of the world or act of god.
But is that how you want to live? Cowering against the prospect of imaginary ghosts, goblins and ghouls? Living in a horror film of our own imaginations?
I say no. Better to die on your feet than live on your knees.
Nothing great was ever achieved without risk
No mountain was ever conquered without risk. No heart of fair lady was ever won without risk. No new world was discovered or new business started without risk. The risk is part of the process.
There is no reward without risk.
The News tells us to be afraid of the Big Bad World. So we try to avoid risk by clinging onto cash that we squirrel away under the mattress or in the bank earning zero interest.
The Prison Camp has taught people to know their place and associate the stock market with risk. Every time you see an investing advert it has dire warnings that you could lose everything. So most people think that the stock market is dangerous.
This is nonsense. Ebola is dangerous. Juggling chainsaws is dangerous. Free-climbing mountains without ropes is dangerous. The stock market contains risk. But the main risks are easily avoidable if you buy and hold a global equities index tracker fund for the long term.
Volatility is your friend
The stock market is a rollercoaster ride. The thing about rollercoaster rides is that they feel scary but are actually very safe as long as you fasten your seat belt, don’t panic and don’t jump out halfway through the ride.
Volatility is the friend of the long term investor. Volatility is the source (and the price) of the superior long-term returns delivered by the stock market.
Trying to avoid volatility encourages retail investors to do things like “reach for yield” in peer to peer lending. This works until it doesn’t. Just like turkeys get fed in the run-up to Christmas…until they don’t.
Financial risk can not be eliminated. It can be managed, mitigated, transformed, packaged up, sold and re-distributed but it can not be removed from the world. You either accept your risk as volatility or you take your risk as something much deadlier.
You can have a lot of money and still not feel like its enough. Money alone can not provide the feeling of security that we often look for it to provide.
There are some problems that money is very good for fixing and some things that it just can’t fix. If you don’t feel like you are enough, then you probably won’t feel like you have enough.
If you want to stop worrying about money, you have to do 2 things. One, build wealth (starting with getting out of debt and saving an emergency fund). And two, you may also need to do some internal work.
If you grew up middle class, you have been fed security your entire life. This will keep you from ending up in the gutter, but you’ll always be risk averse.
Most ways to freedom of time or money involve taking calculated risks that are beyond the comfort zone of most people. I don’t mean things that are inherently dangerous or scary, but things with no guarantee of a secure outcome.Ed Latimore
I’m not saying that everyone should blindly take more risk. But I am saying that there will come a point where an intelligent investor should be braver.
Once you understand that the stock market will fall by say 25-50% from time to time, then maybe you’re ready to be braver?
If you owned a slice of the stock market and held your nerve without selling through the Covid crash of Q1 2020, you’re probably ready.
“in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgement are at hand”Benjamin Graham, The Intelligent Investor, 1973
The Escape Manual is explained * here *