The Zurich Axioms By Max Gunther
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Long-range plans engender he dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people’s, seriously.
George and Martha met and married in the 1940s. George was an accountant. He had a job with a small CA firm. Martha was a secretary in an insurance agency. As was customary in those days, she left her job shortly after the wedding to concentrate on wifehood and motherhood – George’s salary wasn’t much, but it was steady, and so was he. The world seemed secure and cozy. To make it more so, at the suggestion of Martha’s father, a small businessman, the young couple sat down with a financial counselor and constructed a Long-Range Plan.
This was considered a prudent, sensible, and altogether admirable thing to do, and still is. Every young couple ought to have a plan, all the sages said. People with plans and those without were felt to differ in the same way as the ant and the grasshopper in Aesop’s fable. The dour and practical ant works all summer long in anticipation of the winter ahead, while the planless grasshopper just sits around singing in the sun. In the end, of course, the poor old grasshopper has to come around, hat in hand, to beg for food, while the ant has the satisfaction of saying, “Ha, ha, I told you so.”
In real life, however, it is more often the ant who gets himself fumigated or has his nest torn up by a bulldozer. That’s what comes of having roots (see the Sixth Axiom), and roots come partly from long range plans. The grasshopper, lighter on his feet, just hops out of the way.
George and Marth today are a retired couple in their sixties. They are nearly broke. They will be entirely broke, busted flat and dependent on charity, if they live much longer. Hardly any element of their long-range plan has turned out the way it was supposed to.
They figured in the 1940s that they would like to retire on combined pension and Social Security income of $700 a month, or $8,400 a year. That was a whopping good income in the 1940s. As a matter of fact, in most questionnaires and tabulations of income, the very top bracket was usually “7,500 and over”. That was the peak of affluence. Nobody knew anybody who earned more.
Today, of course, $700 a month will rent you a small apartment – as long a you don’t want to eat. If you insist on eating and also want money for clothes, medical bills, and other necessities, then you’re in trouble.
George and Marth’s long-range plan envisioned their buying a small house to retire into. They were going to buy it with spot cash so that they wouldn’t no monthly mortgage payments to worry about. To this end, the plan called for them to save some $20,000, by age sixty-five.
If you have $20,000 in the 1940s, you could buy two houses and have some change left over for a car. The plan didn’t foresee that in the 1980s, that seemingly big amount of money would hardly buy a dog kennel.
George and Martha don’t have the twenty grand in any case. During their passage to poverty they have been hit by some unexpected expenses (As everybody is) and misfortunes (as ditto).
In the 1960s, George’s employer got tangled into a messy dispute involving falsified corporate financial records, and the CA firm turned belly-up. George’s job vanished, and his planned-for pension went with it. He found another job after a long hunt, but he never did achieve the $700-a-month retirement income he and Martha had planned on. Since retiring they have had to draw on their savings. Though their money earns interest at three times the rate they foresaw (2 to 3 per cent was usual in the 1940s), their principal is dwindling fast.
They live in a seedy little apartment, eat a lot of canned beans, and spend a good deal of time wondering what happened.
Two things happened: planning, followed by the unexpected.
George and Marth depended on their plan too much. They got themselves rooted in it. There were several times in George’s undistinguished career when he could have jumped off in some promising new direction. He could have gone into business with a friend, for example. The friend wanted to start a CA practice of his own. Both practice and friend are now prosperous. At the time this opportunity was offered to George, however, it scared him. It seemed too risky. He and Marth retreated into the cozy comfort of their plan. They didn’t need to take any risks, they figured. They had life all figured out. The plan assured them of a nice little house and a comfortable income in their old age. With that bird in the hand, why did they need to go for two in the bush?
Thus did they allow themselves to be hoodwinked by their own long-range plan. It didn’t occur to them that the bird they thought they had in hand was going to fly away.
As the Axiom says, long-range plans engender a belief that the future is under control. This is a hair-raising dangerous belief.
Peering ahead, I can dimly see the structure of next week. There is just enough continuity in events to allow me to do that. I can sit here on a Wednesday and make some kind of financial plan for next Wednesday, perhaps. Allowing a margin for error, I can make a fairly reliable prediction of the week-ahead value of my wife’s and my stocks, real estate, bank accounts, silver, and other assets. Even this plan and prediction can be ridiculously wrong, of course. The stock market may collapse before next Wednesday, for all I know. I may run over somebody’s toe with my car and get sued for every nickel I’ve got. Still, I feel fairly comfortable planning seven days ahead. The visibility isn’t great, but it’s tolerable.
A month ahead, the visibility dims markedly. A year ahead, it is fogged almost to opacity. The years …. twenty years .. …. that far ahead, there is no visibility at all. You can’t even set vague forms or outlines. You can’t see anything. It is like peering into a pea-soup fog in the dead of night. Whatever is waiting for us out there is entirely unknowable.
It you can’t know what you’re planning for, how can you construct a sensible plan?
To plan for a future one cannot see – this seems like an egregiously silly undertaking. Yet life-insurance salesmen, investment counselors, and others experts go on urging it, and families – particularly young families – go on doing it. Having a long-range plan is felt to be as laudable today as it was when George and Martha were starting out. And it will do you just about as much good.
A plan is a lifelong illusion of order. Economists, financial advisers, and others who sell twenty-year plans always talk as though the money world is an orderly place that undergoes change very slowly and predictably, like a tree growing. Peering into the next century, they see a financial world that will be basically like this one, only more so. It will be bigger, more automated, more this, more that. They arrive at these reassuring conclusions by observing trends that characterize our world today and extending those trends into the future. All very tidy, and it allows for concoction of a lot of long-range plans.
What all these hopeful planners either fail to recognize or choose to ignore is that the money world is only in a limited sense like a tree growing. It is ridiculous to think you can see the world’s future simply by looking at trends in evidence today. Some of those trends will undoubtedly peter out or reverse themselves in the next twenty years. Nobody knows which ones. Whole new trends will spring into existence, factors that nobody today even dreams of. Unknowable events will take us by surprise. Booms and busts, upheavals, wars, crashes and collapses: who knows what we have ahead of us?
The world in which your financial affairs will be conducted twenty years hence is hidden behind a curtain through which no chink of light shows. You cannot even know if there will be a money world at all, or a dollar, or anything to spend the dollar on.
That being so, don’t try to make long-range plans or allow other people to make them for you. They will only get in your way. Instead, stay light on your feet, like the grasshopper. Instead of attempting to organize your affairs to accommodate unknowable events in the future, react to events as they unfold in the present. When you see opportunities, go for them. When you see danger, jump out of the way.
The only long-range plan you need, as far as money is concerned, is an intention to get rich. Exactly how you will accomplish that purpose is something you cannot know except in the most general way. I’m fond of the stock market and am usually invested up to the ears in it, so I assume my personal ‘how’ will have something to do with that particular speculative world. But that is all I know about my financial future and all I will ever attempt to know about it. The only kind of preparation I can make for the next century, therefore, is to continue studying the market, to go on learning and improving. If you can call anything so vague a plan, then that’s it – that’s my plan.
Yours should be similarly free-floating. Resolve to learn all you can learn about the kinds of speculation that attract you, but don’t ever lose sight of the probability – no, let’s say the certainty – that your speculative media and the circumstances affecting them are going to change in ways you cannot now imagine. Don’t let a plan immobilize you. Don’t get stuck, don’t get rooted like the ant, a potential victim for fate’s bulldozer.