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Saturday, March 30, 2013

Are we getting real value? Dealing with long time lines

My wife an I met with a team of financial advisers last week. I am not planning on working at the same gig until I drop dead and we wanted to perhaps hire some help to sort out our saving an investment strategy for perhaps the next 20-40 years. It might all be moot if we are wiped out by a North Korean nuclear attack but optimism still reigns. In the back of my mind I am thinking I need
to have sufficient funds until I reach 100.

We are talking about paying advisers a significant chunk of change. I could consider doing this myself but I know I will not invest much time or effort. I also would also beat myself up if I did a lousy job which is very likely. That said, I know enough just to be dangerous and also fear spending money unwisely. Damned of you do, damned if you don't.

Hiring someone to manage your money so you can be financially healthy long into the future is like hiring a health care professional when you are healthy to maintain your health. Presently we are financially healthy. We are prudent about saving and live within our means. We are proposing to hire an adviser who will be responsible for taking actions now to prevent something bad from happening in the future. I am somewhat skeptical of the actual value these professional can bring to me and my wife.  How can anyone know what to do now (other than the basics of saving and avoiding really bad investments) which will optimize our circumstances perhaps nearly a half century away?

The parallels between financial professionals and health care professionals are obvious. Some financial professionals deal with people with acute or chronic illnesses. Facing bankruptcy, mortgage foreclosure, or mounds of debt, there are those who can deal with your acute financial illness. It is not so attractive for professionals since broke people don't generally have deep pockets. Better deal with the financially healthy and try to convince them you can make them even healthier.

In healthcare we have more financial incentives through the insurance system prompting us to want to deal with those who are acutely sick. However, we also have a host of incentives to deliver care to people who are essentially well with the promise that we might prevent something bad from happening in the future. People and their insurers pay the health care delivery system huge sums of money to provide forms of care which likely do not provide any value to the vast majority of the recipients. Just think of the NNT concept. We acknowledge that we might treat thousands or tens of thousands of patients so a handful might benefit. We do cancer screenings, treat lipid abnormalities, and routine check ups on people whose only obvious pathology is that they are worrying about the future. We have a vast array of possibly predictive tests which for the most part we don't understand and a willing public who haven't a clue as to what value they could be receiving (or not). The typical health care encounter is 95% ritual and perhaps 5% science and we still ridicule funny dressed shamans in the global south.

As it turns out, the cost of health care premiums on an annual basis and the investment management fee on a $1 million portfolio is in the same ball park. Both are a lot of money. Are the services that are purchased by these fees really worth it? I am not sure. They are both trying to buy peace of mind and assure the best outcome so far in the future that we are crazy to believe that anyone or anything can see that far ahead. How do we measure success? You are still here...You are not broke yet. I guess it worked.

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