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- Exploring the leaky bucket, planning, and benchmarks
Exploring the leaky bucket, planning, and benchmarks
Logan
October 03, 2024
In partnership with
Exploring the leaky bucket, planning, and benchmarks
Happy Thursday! Thanks for reading Intentional Dollar — where we look at old money ideas through a new perspective.
What’s inside?
One tool to experiment with
Two quotes from others
Three questions to dig deeper
Four lines of poetry for the point
Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.
Your IRA, made to order
Choose where and when you want to retire, and a Betterment IRA can help make your money hustle all the way there.
One tool to experiment with:
The Leaky Bucket
There’s only one investment decision that is guaranteed to send you to the poor house; guaranteed to break your bank. And it’s this: leaving all your dollars in the bank and never electing to invest them.
Sound confusing?
When you are afraid of loss, risk of loss with your money, you avoid anything that might expose you to this fate.
Investing appears full of these risks, so you naturally avoid deploying your dollars for fear that they might disappear.
But this decision is a trade off. You trade the potential for short-term losses, which seems risky, for real long-term risk.
Real risk is not investing your money.
As strange as it sounds, that stable bank statement value is deceptively unstable. While your stated value does not change, it loses out to inflation, which erodes and degrades your dollars over time.
It’s like a bucket full of water, plagued with a few small holes in its armor. Leave your water in long enough and it will disappear.
Inflation is a silent killer.
If a thousand extra dollars sit in your account, they buy less and less of a similar basket of goods each year.
At 3% inflation:
After one year, your $1,000 spends like $970
After two years, $942
After three years, $915
This problem gets worse as compound interest works against you.
The decay compounds as the cost increase this year steps directly on the shoulders of the cost increase from last year.
It’s tricky because each year you login, you will see $1,000 as your balance. But taking those dollars and attempting to buy goods won’t translate to the original amount of goods you could have purchased years ago.
Think about the cost of coffee. Years ago $1,000 could buy you 1,000 coffees. Now you’re lucky to get 250 coffees with the same dollars.
You have to take short-term risk, risk that the market might be lower than when you bought in, to grow your dollars in a meaningful way.
Holding cash isn’t a bad decision. Cash for emergencies, short-term purchase goals — these are all noble causes to save for. The crossover from good to bad occurs when you have excess cash and specifically avoid investing for fear of the future.
Beware the holes that hide in your bucket.
inflation is a hole in your money bucket
Two quotes on the planning:
Be prepared and have plans. The plan is certainly wrong from the start, but the act of planning gifts a preparedness that can’t be earned without a plan.
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
“Let our advance worrying become advance thinking and planning.”
Three questions on benchmarks:
We avoid tasks because we don’t think we are good at them.
Who am I benchmarking myself off of?
What would it mean to compare myself and my money to my past state rather than someone else, or their expectations?
What if a lack of benchmarking leads to a lack of ambition and performance? No accountability, no effort.
Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.
Four lines of poetry for the point:
Inflation chips away,
At your value every day.
Your investment indecision,
Is a decision to witness your money melt away.
Contact Me:
Content ideas, questions? Reply to this email or reach out to me at [email protected]
Disclaimer: This is not investment advice. These weekly posts represent my simple thoughts, a few quotes, and some questions — for educational purposes only.
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