Most people are familiar with the recipe for happiness espoused by Mr Micawber in Charles Dickens’ David Copperfield: risk.
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
The line between success and failure when saving for retirement is equally fine. Either you will have enough retirement savings to allow you to enjoy your chosen lifestyle until the day you die; or you will run out of money and be left to rely on family, friends, charity or the state to support you in your later years. With all the loss of dignity and independence that entails, I can hardly think of anything worse.
In one of the last articles he wrote, Jack Bogle set out the seven most important things he had learned about investing. Top of his list was that “the biggest risk facing investors is not short-term volatility but, rather, the risk of not earning a sufficient return on their capital as it accumulates.”
There’s no escaping the fact that equity investing involves risk. It’s natural for people to feel uncomfortable about it. But if you want to build sufficient wealth to ensure you won’t run out of money, even if you live to 100 or beyond, it’s a risk you have to take.
Daniel Crosby puts it beautifully in his book, The Behavioral Investor:
“Think about the most meaningful thing you have ever done. I would wager that it took a measure of risk, uncertainty and hard work to achieve. In this, as with all risk, comes a valuable lesson: to strive for certainty is to doom oneself to mediocrity. Nothing is less safe than playing it safe and nothing guarantees loss like trying to avoid it.
“The irony of obsessive loss aversion is that our worst fears become realised in our attempts to manage them.”
This imperative to invest, to find a way of embracing uncertainty and a reasonable level of risk, is the subject of the second video in our series, Jack Bogle’s All-Weather Investing Guide. Please do share these videos if you find them helpful.
If you missed Part 1 of this series, here it is: