If you look out in a surf lineup on a smaller day, you might notice that a good portion of the surfers typically aren’t wearing leashes. Why would someone choose not wear a leash? If you fall and don’t have a leash on you can find yourself going for a swim, hitting another surfer with your board, or watch in horror as your board goes slow motion into the rocks (that was me 2 weeks ago). For some, it’s because leashes can get tangled and turned around which impedes your movement if you need to shuffle your feet around on your board. Sometimes you step on them when standing up and it throws off your stance and balance. For others, there’s a bravado element to it. Something to the extent of “I’m experienced and confident enough in my surfing abilities that I don’t need to wear a leash.” For me it’s probably a combination of both of those things. Plus, in the summertime taking a swim on a hot day when you lose your board is awesome.
There is a certain subset of surfers that have a love/hate relationship with surf leashes. You may see a bumper sticker like this one next time you pull into your local beach parking lot:
Why? Because the leash can create a false sense of security. If you are always within 6 feet of your board the risk of drowning obviously goes way down. But it also can create an environment where surfers that do not have the ability to surf in bigger conditions get into trouble. Talk to any hardcore surfer and they have saved at least a couple of novice surfers from some bad situations (my count is at least 5). If the leash was never invented, would so many people really be in the water when they shouldn’t be? For those that rely on the leash thinking that they have avoided one risk may be opening themselves up to another. Yes, you are attached to your board but you can snap your leash, get caught in a rip current, or fall and hit another surfer.
*This is what it felt like at Swami’s last weekend
For most investors, risk means trying to avoid big downturns in the market in order to protect what you’ve already saved. Unfortunatley in the name of risk avoidance, too many investors get sold a bill of goods by life insurance salesmen (posing as advisors) that promise “guaranteed income” and “downside protection” in products like variable annuities. It sounds great right? Who doesn’t want all of the upside with none of the downside?
The problem is that most of these products are expensive, complicated, and not in the best interest of the majority of the people they are being sold to. Over the weekend, Barron’s profiled 2 advisors who work with teachers who are unfortunately preyed upon by these salesmen and the stories are unbelieveable:
“He couldn’t believe what he saw. Many of his fellow teachers were in high-cost annuities, lured by tax-deferred growth and a lifetime stream of income. It made no sense—savers don’t need income; they need growth. And they don’t need tax-deferred products, since their retirement plans were already tax shelters. For these unnecessary “features,” the annuities imposed high sales charges on every paycheck withdrawal. And a 2% annual management fee. And large surrender fees of, say, 7%.”
The Annuity Trap That Teachers Need to Avoid
Terrible.
So if you should avoid these kinds of products in your retirement plan, how should you feel about taking risk in the stock market? What else can you do to protect yourself from all of the market volatility?
Watch this video. It explains the reasons why you have to take risk to reach your long term goals, why the 2008 crisis still haunts our behavior, and why the retirement landscape is so much different today than it used to be.
Great stuff. I love the comment about the older you thanking the current you for taking the right amount of risk today. I’d encourage you to get a financial plan done if you haven’t done one already. It’s a great way to quantify why you are investing in the first place. We do this, as well as a number of free online sites.
Now if you’ll excuse me, I need to go to the Ding King and get my board fixed.
