Back in my early 20s, when I was broke and in student loan and credit card debt, I started to be able to save a little money. Like practically microscopic amounts. But it was something.
I was so terrified, though, of losing even those few dollars that I thought I needed to make them as safe as possible. So instead of putting them into vehicles that might actually make me some money, I put my funds into a savings account, not even a high-yield savings account, and once I started to save slightly more, into the “safest” mutual fund I could find, an intermediate bond fund. I did the same thing with my 401(k), putting my 1 and 2 percent contributions into bond funds, telling myself I’d get more ambitious with my investing “later,” after I had enough of a cushion that I could lose some of my invested totals and still be okay. Though, honestly, that wasn’t a future I could actually envision, so I might as well have said I’d start investing less fearfully when dogs rise up to be our overlords. (Let’s hope it’s the golden retrievers who get put in charge if that happens.)
A few years later, I took a look at my “portfolio,” a couple thousand dollars between the savings account and mutual fund, to see how I’d been doing. At first glance, it looked good. The little line graph went up-ish on the mutual fund, and the savings account kept gaining a few pennies a month in interest. Numbers going up — I must be winning, right?
But then one day, I clicked a link on my bank’s site about inflation and consumer prices, and saw the rates for those years: 2 percent, 3 percent, 4+ percent. The chart looked a lot like my mutual fund chart, actually. I thought, “Huh, I wonder if those things are related.” And then I thought about my money sitting in savings, gaining a little under 1 percent in annual interest in those years.
It wasn’t an all-at-once reaction, as it seems in hindsight like it should have been, but eventually, I realized:
By trying to keep my money safe, I was actually guaranteeing that I’d lose it.
I wasn’t technically losing actual dollars, but I was losing spending power with each day that passed with my investments gaining less than inflation was taking away. One step forward, two steps back.
It would make for a better story if I had some empowering realization then, and began investing more aggressively, with confidence, but the truth is that I was crushed. I had worked hard in that time to pay down my debt, and I saw those few thousand dollars as all that stood between me and financial ruin. And now I could see them slowly trickling away, like sand slowly draining out of the hourglass.
Eventually I built up a bigger safety net, and once Mr. ONL and I combined finances, he helped nudge me toward investments that would actually beat inflation and grow in real terms over time. It wasn’t an easy shift to be willing to put my money at risk like that — investing in stock funds felt only slightly less risky than spinning a roulette wheel — but I got there because I’d learned one of the most important lessons of my life, seeing my savings account’s tiny gains alongside those much larger inflation rates:
There is no risk-free option. Not ever. Not just with money.
Pick Your Poison
Investment banks categorize funds by level of risk, but it’s all an illusion. What they don’t tell you is that by investing in the least risky plans — the “safe” ones — you are increasing your risk of not beating inflation. Which is the exact same thing as losing money over the long term.
What they really should ask you, instead of assessing your “risk tolerance,” is What type of risk would you prefer? And then you could choose based on whether you’d rather take on volatility risk or inflationary risk. But you’d know it’s not a yes/no question. It’s either/or.
Not Choosing Is Its Own Risk
Realizing that we can never escape risk was deeply uncomfortable for someone who is borderline obsessed with building multiple levels of safety into financial plans (hi), but it was also profoundly empowering, or at least it was after I got over the loss of my illusion.
When I realized that my safe approach had never been safe at all, I started seeing all of my financial choices differently. I started seeing all of my life choices differently, too.
I saw that taking some leap, trying something that felt scary might feel like a risk, but the equal and opposite risk was in not trying that thing, never knowing if I might have loved doing it. Which of those would I rather risk?
It’s like choosing a life partner, if you’re into that sort of thing. We are all flawed humans, but it’s a false dichotomy to think we have to choose between the perfect partner and no partner, or the perfect partner and settling. Instead, we should toss out that perfection notion (the mythical no risk choice) and choose the person whose particular flaws jive best with our own. Not yes/no, either/or.
Not Choosing Early Retirement Is a Risk
I have long had the feeling of a ticking clock hanging over my head, reminding me that I’m getting closer to the age when my dad’s disability took effect, a disability that may be hiding in my own genes, watching its own ticking clock.
So when I learned that early retirement was an actual possibility, it was an instant sale. Because I knew, with this alternative life path suddenly open to me, that this either/or question had a perfectly clear answer:
Would I rather risk having money difficulty in early retirement, or risk spending all my able-bodied years at work?
For those of us who crave safety, who hate gambling, who wish we could have certainty on just one thing, once, ever, there’s so much temptation to see that risk-free option. And continuing to work intuitively feels like that financial security blanket. But every day we spend at work is a day we risk missing out on the things we value most. That was not a gamble I was willing to take, and it’s still not.
It’s why even though I’ve found new affection for my job, and even though I will always have anxiety about recessions and sequence risk and all the rest, none of those outweigh the risk of leaving all my best years at the office. The risk of missing the chance to live the life — even if only for a few short years — that only my able-bodied self can live.
The Third Law of Motion — and Risk
For every action, there is an equal and opposite reaction. We remember it in physics, but it applies just as well here. For every risk, there is an equal and opposite risk. For every opportunity we don’t seize, there’s a potential regret we do seize.
It’s up to each of us to shape not how much risk we take on, but which risks we find acceptable.
I still call myself risk-averse, because that’s lazier shorthand than explaining that I try hard to balance the two equal and opposite risks: financial insecurity in retirement vs. working for too much of our lives. Working through this year but not longer feels to both of us like that right balance, but it’s just our best guess with the information we have.
If Everything Is a Risk, Is All Risk Risky?
(Say that three times fast.)
I am the last person who will tell anyone to buy the volatile stock or quit a job on a whim. But for those things we want to do in life, but let fear hold us back, it’s useful to remember that equal and opposite risk. We may spare ourselves from failure or rejection or humiliation if we don’t do the things we’re drawn to do, but at the cost of never knowing what we might have been capable of, what we might have found immense joy in, whom we might have met and connected with.
Does anyone, when looking back at life from their deathbed, ever think, “I wish I hadn’t tried that thing or put myself out there”? Or do they regret the things they never went for, the opportunities they let pass by?
If we remind ourselves that the “safe” option might come with the biggest risk of all, it’s suddenly easier to push past our fears, and to do the scary thing.
And in my case, early retirement is the scary thing. I fully expect to be terrified when I give notice, and when we collect our final paychecks. But that’s not going to stop me from doing it, because the alternative is much, much scarier.
What’s Your Either/Or?
Whether you’re working toward retirement or not, what’s the thing for you that outweighs or counterbalances the financial risks you might be considering taking to retire early? What risk in your life do you feel more willing to take if you consider the equal and opposite risk of not taking it? What risks have you started to see as either/or choices? Let’s chat about risk in the comments!
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