On today's show, we answer a request from a Keen on Retirement listener who's been reading Garrett B. Gunderson's popular book "Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity." You might have seen some of Gunderson's thoughts about alternative financial strategies passed around online, especially among folks who are skeptical about the markets and the government's role in economic policy. But while there's certainly no one way to create a financial plan, most investors who steer clear of "sacred cows" like investing in a diversified portfolio and funding their retirement accounts could be killing their chances of a secure retirement. Below are several of the points we discuss.
Myth #1: The Finite Pie
You'll often hear folks argue that financial resources are limited and there just isn't enough to go around. Some think that if your neighbor has a bigger piece of the "pie," yours is always going to be smaller. Better to protect the assets you do have -- especially cash -- than risk investing them in a rigged system that's always going to benefit the haves more than the have-nots.
A quick glance at the Dow Jones Industrial Average's historical chart dispels this myth pretty convincingly. Zoom in on a bumpy section, like the market crash of 1929, and things look pretty grim. But pull back and take in the big picture and you see an arrow that continues to trend up. That's because the "pie" gets bigger every year. And if you're following a disciplined investment strategy with the guidance of a fiduciary advisor, your piece has an excellent chance of growing too.
No, capitalism isn't perfect. But if you look back through history and at the rest of the world today, it's clear that this is the best system we've got. And while sometimes it can feel like there are more losers than winners, the numbers show that our economy keeps getting bigger, expanding wealth, opportunities, and standards of living as it grows.
Myth #2: You're in it for the long haul.
Gunderson believes that folks should focus more on today's income and less on potential returns on investment in the future. You can count on your monthly paycheck and watch your savings grow and compound interest. But the markets can be volatile, so it's unwise to plan around financial outcomes that no one can predict. Better to enjoy the money you have today and save what you're not spending than risk your money in the markets.
Let's do a quick thought experiment. Imagine you have a $1 million portfolio of all stocks, and the average dividend is 2%. That's a cash flow of $20,000 per year. But historically, stocks also increase -- "appreciate" -- in value. It's capital appreciation plus the annual dividend that creates the total return on your investments. In the long term, that historically averages out to 8-10% per year -- even allowing for the occasional blip like a recession or two.
The idea that folks have to choose between enjoying themselves now and this kind of long-term wealth building -- which, while not 100% predictable, has proven awfully reliable from a historical perspective -- is simply false. At Keen Wealth, we help folks at every stage of their financial journeys find that sweet spot between living life to the fullest today and securing their futures. For most folks, it's not "either-or" it's "both-and." And there's no magic secret to getting the most out of your money today and tomorrow: it takes hard work, discipline, and a commitment to your financial plan.
Myth #3: Jobs provide financial security.
You could get fired tomorrow. Instead of relying on a company or the government to provide for you, you must provide for yourself. That means saving what you earn and investing in skills that will make you so valuable that you'll always be employed or you'll be able to go out on your own as an entrepreneur.
Finally, here is some advice that we can (partially) agree on!
Self-improvement is something we should all strive for throughout our lives. A willingness to try new things, learn new skills, and build better habits can help folks keep pace with the rapid changes in business and build multi-stage careers. Those same skills will become important in retirement when you're trying to figure out who you are without work and what you want your golden years to be like.
But while the days of the 50-year career at one company and a generous pension may be over, I think Gunderson takes his message of self-reliance a little too far. For most folks, working at a company -- or several -- provides major benefits like health care and retirement planning. Moreover, the professional skills we sharpen are ultimately only worth what someone else is willing to pay for them. It's the specializations we buy, sell, and trade together in a marketplace that creates wealth and keeps that pie growing.
Myth #4: Self-Insurance
Rather than buying term insurance and investing in retirement accounts like 401(k)s, Gunderson believes that folks should put their money in whole life insurance policies. The theory here is that whole life policies protect your money while offering some investment exposure and tax advantages. Plus, the U.S. government is inevitably going to tax away money in 401(k)s and potentially Roth IRAs because of the size of our national debt.
It's not surprising that killing all these cows leads to a sales pitch -- before becoming an author and speaker, Gunderson made his bones selling insurance.
As we've discussed several times on our podcasts and blogs, "the death of the Roth IRA" and other retirement accounts has never advanced past talk. For the past ten years or so, the government has been encouraging individuals to take more control over their financial futures. Eliminating or raising taxes on retirement accounts would only create a group of angry and motivated senior voters.
As for the specific benefits of whole life insurance, yes, these policies can have a place in some financial plans, especially on the estate planning side. But in the short term, they also tend to be more lucrative for the broker than they are for the buyer. Overinvesting in insurance versus making contributions to the kind of portfolio I described above might feel safer today. But it's likely you'll feel like you missed out on a chance to build wealth tomorrow.
Again, there are no magic tricks or short cuts to financial security, and anyone who says there are is probably selling something. Before you follow any Internet advice to a major financial decision, please take some time to meet with a Keen Wealth advisor. And if you see any other suspect financial tips you’d like us to break down on a future episode, email me at email@example.com.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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