Taking Ownership of the Risks and Opportunities in Your Life

I know that this is a post that many of you will read, give it a minute’s consideration, then promptly go about your lives soon forgetting what this post was about.  All I can do is beg that you read it and at least consider acting on it.  Here is the quote made famous by the investing legend Peter Lynch: Know what you own.

After you read that, I can imagine you are either thinking, what the heck is this, or, where is he going with this.  Well consider all of the things that you own in your life.  Insurance, investments, contract agreements, consider everything that is on the table of your life.  Now consider all the things that could possibly go wrong in your life that could set you back, that could leave you broke and destitute.  For most people the things that are automatically going to come to mind are divorce, a health crisis, a stock market crash etc.  Now ask yourself, “What have I done to mitigate all the risks that could result in the catastrophes that are mentioned above.”  I know many of you are going to say right off the bat, “Insurance!!”

Now let me ask, “Have you read the insurance manual that you bought with your home?”  For the vast majority of people, unfortunately, that answer is a resounding no.  Many people are going to be in for a nasty surprise if the New Madrid fault line in Missouri goes.  Plenty of people are also going to be shocked to hear there is a serious chance of a major earthquake in the northwest United States.  For the people living there I must ask, “Does your insurance cover earthquake damage for your homes and businesses?”  Most likely, it doesn’t.  Insurance is one of the great safeguards that we have to protect ourselves, but you are limiting the utility of what you are buying from a company if you don’t read up on what you are paying for.  Look through the promises that you are receiving from a company, go through it with your spouse if applicable, and look at the trade-offs.  If a disaster strikes, can you or your family survive?  If you can’t, try to find ways to protect yourself; you owe yourself the right to, in Charlie Munger parlance, “not go back to go.”

What about the retirement benefits you buy from the companies that you work for?  Plenty of articles have been written about 401k fees, so I am going to give that a break, and instead talk about some of the plans that companies have where they give you extra money for retirement.  Look at some of the benefits that major corporations give to their employees on their stock purchase plans.  Walmart for example matches 15% of a part-time or full-time employees’ purchases of Walmart stock up to $1800.  If you are an 18 year old making minimum wage, never move to another corporation, never get an education, and never do whatever else you can imagine, but you contribute the $1800 every year, and Walmart matches you 15% of that, when you retire at 65, you will be a millionaire.  Doubt the math? Do an annuity calculation.  If you assume that Walmart compounds at the average that blue chip stocks have over the past 100 years, or 10%, and this current 18 year old works  for 47 years until he is 65 you can put in all those variables, and the number that comes out is $1,804,987.95.  How much of that 1.8 million is due to Walmart’s contributions you might be wondering is $270,748.192.  On minimum wage, it will probably be hard to save that amount, but if you can find a second job or other opportunity to help you pay the bills, take a look at possible ESPP plans that your employer may offer.

Hidden opportunities and pitfalls await you in life wherever you go, that much is unavoidable, but don’t go through life oblivious to what you can gain or lose from it.  There is a reason why Einstein said that compounding is the eighth wonder of the world, and in a country like the United States, opportunity is there if you look for it.  Search out the risks that you have in life, and do your best to protect yourself from them.  If you do that, a lot of financial and personal misery can be avoided, and that, I guarantee you, will make it worth it.