Written by: Cary Carney, Vice President of Sales at Kuvare, Guaranty Income Life Insurance Company, a Kuvare company.
Henry Wheeler Shaw, a 19th century humorist, once quipped, “The greatest thief this world has ever produced is procrastination, and he is still at large.”
Procrastination is the action of delaying or postponing something. Have you ever procrastinated? Has it cost you anything? Time? Money? Did it create any unnecessary anxiety? I will go out on a limb and state that most of us have probably procrastinated something in our personal or professional lives, which potentially created a negative reaction, whether large or small.
Take for instance the time you procrastinated going to the gas station, ran out of gas and had to walk to the nearest gas station or call AAA to bring you gas. Or the time you waited to buy tickets for your favorite concert, and they were sold out by the time you decided to purchase them. How about examples we are seeing today? How many people thought about building a house for years only to finally pull the trigger and find that lumber prices increased 30%, 40% or more? My point is that no matter how small or large, the cost of waiting typically will cost you in some manner, and your finances are no different.
Let’s look at the stock market. As you see on news feeds, websites and pretty much everywhere else – the market is seemingly always at an all-time high. Will it go higher, or will we see a correction? When is the right time to diversify or take a portion of money out of the market and put it into something that captures those great gains without losing it by a correction? What will it cost you for waiting? Does the upside outweigh the downside?
If we look deeper into market corrections, keeping math simple, if the market goes down 20% and then increases 20% the following year, you should be back to even, correct? Unfortunately, no. The market would have to increase 25% to return to where you were prior to the 20% decline. Using real numbers, if you begin with $100 and the market drops 20%, you have $80. If the market gains back 20%, you only have $96. The market would have to increase 25% to get you back to $100.
However, what if you were to take some of your money out of the market when it is experiencing all-time highs and secure those gains while also getting returns that don’t put your earnings at risk? If there’s a market correction, you could be ahead of the game.
This idea also works with interest rate risk. Again, a deeper dive into the numbers shows that if you are sitting on the sidelines waiting for interest rates to rise, you could be losing out on opportunity but also delaying your ability to achieve your financial objectives. Let’s say you have money in a taxable CD or bank account earning .50% waiting for rates to go up before you take action. If you start now, you could earn 1.90% in a tax-deferred fixed annuity guaranteed each year for three years. To earn the equivalent return in a taxable account at .50%, it would take 12.2 years. Even if you raised the taxable account to 1.00% it would still take 6.1 years to earn the equivalent of what you could gain in just three years with a tax-deferred fixed annuity at 1.90%.
Everyone’s situation is different, so talk to your financial advisor about the best options for your situation. Don’t let procrastination cost you opportunity!