Stag?!…It’s a Goat, Idiot!

by Ouida on May 31, 2010

“That wasn’t your Patronus!” said a Death Eater. “That was a stag, it was Potter’s!”

“Stag!” roared the barman, and he pulled out a wand.  “Stag! You idiot —expecto patronum!

Something huge and horned erupted from the wand:  head down it charged towards the High Street and out of sight.

“That’s not what I saw–” said the Death Eater , though with less certainty.

“I still say I saw a stag Patronus!” shouted the first Death Eater.

“Stag?” roared the barman. “It’s a goat, idiot!”

Harry Potter and the Deathly Hallows, JK Rowling

And so begins deception.  You know something because you have seen it, yet somewhere along the way you begin to doubt what you have seen.  And you doubt what you have seen because another, presenting a reasonable facsimile, tells you that you are mistaken. The stock market is the way to a sure retirement, yet there have been two bear markets in a matter of a decade wiping out trillions in retiree wealth and pushing back planned retirement dates.  Home prices would always rise yet we are in the midst of one of the worse housing markets in 2 decades.  The popping of this most recent bubble has wiped out 1 trillion in home owner wealth.  Anyone who bought home in the late 1980’s and early 1990’s and saw the aftermath of the Savings and Loan debacle knew that home prices could not possibly continue to rise unchecked, yet financial pundits and mainstream media armed with charts and graphs insisted that they could. And so many ignored the lessons of history and bought.  Deutsche Bank now predicts that through 2011 some 25 million homeowners will be upside down on their mortgage.

Too many tell us that what we see as and know to be a stag is really a goat.  What I have found as I plan for retirement is that without the pension plan that I thought I would not need, retirement would not be possible until well into my 60s despite saving regularly into my 401K and having a generous company match.  I don’t have to search very far to read the same pablum that I have read for 15 years: maximize your 401K, maximize your match, diversify your portfolio.  Why didn’t I think I would need my pension?  Because the 401K is king.  Now I am glad to have my pension because the King is really a Joker.

Financial planners have taught millions to do net worth calculations when they should have been focusing on cashflow.  The real question should be how much of my net worth can be converted to cashflow for me to live on in retirement?  For far too many, a high net worth translates into too little cashflow. Sure your home may be paid for in retirement, but what is your cashflow?  Does it make sense  to have $200K tied up in a home in retirement or does it make sense to liberate half of that money, avoid income tax and carry half in a small mortgage over 30 years?

Many of us see stags running around the streets of our financial lives, yet we are too willing to believe that what we see is a goat because an entire industry is predicated upon our doing just that.  What would happen to the stock market if people stuffed their 401ks with bonds rather than stock mutual funds?

What would happen if people began to focus on cashflow and therefore chose to create the extra time to start a small business? We are told that starting a business is too hard and too time consuming, yet I can think of nothing more wasteful  and nothing more risky to one’s overall financial well being than spending 30 years thinking  a stag is a goat only to find in the end it was a stag after all.

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