The rules are simple.
- If after rolling the dice you land on a square with a snake’s head, you get penalised and slip backwards down its body to a lower square on the board (depending upon how long the snake is).
- If you’re lucky, and we all like to think we’re going to get lucky, if you land on a square with the base of a ladder, you get to climb to the top of the ladder and jump ahead to a higher square on the board (depending upon how long the ladder is).
Life and business can seem that way too when you’re first starting out.
None of us knows what life events are ahead for us at all. We all know someone who landed on the shortcut up a ladder, and we all hope we’re not ‘that person’ who unfortunately lands on a snake and slips behind.
Sure, we all try to control our life by making plans, investing in education, we eat well and exercise and look for ways to become better parents, better partners and better business people. But the statistical realities are, some people will fall behind due to events outside their control, just because life is in part a game of chance.
We all have a 1 in 20 chance of being totally and permanently disabled during our working life. I’m not alone in the statistical realities of bad luck; I found myself becoming ‘that guy’ who was one of the 1 in 20.
For me, that fall behind event occurred when at the height of a fast-growing legal career I stepped on a snake, so to speak and found myself crushed by unexpected complications from an unexpected surgery that stole two years of my life and health, my money, my time and confidence.
Needless to say, it put me behind in the game for a few years, but it also gave me a profound insight into the reality that all my clients face today, whether they know it or not.
They say compound interest is one of the greatest invisible wonders of the world. It’s where interest earned on money if left to compound over time, begins earning interest on the interest and accelerates its growth at an ever-increasing rate if given enough time.
- If you save $200 a week for 30 years @ 7% compounding interest, that’s more than $1,000,000 saved and earned.
- You can use the government’s own ASIC MoneySmart website calculator and see the effect of this invisible wonder yourself.
The problem is, to benefit from this invisible wonder, you have to start early to let the compounding take effect.
If you’re late to start the game (or perhaps like most of us you’ve had your fair share of encountering snakes that put you behind), late starters need a bigger amount of money to invest to achieve the same result, and a backup plan to protect what they cannot afford to lose.
This requires a deliberate choice and usually the help of a professional to help you make up for lost time and opportunity, and make sure you don’t risk what you can’t afford to lose.
While many people just secretly hope to chance find a ladder to get ahead in the game, my experience is that ladders take particularly more effort to find and climb, and snakes are a little too common for us all.
When we’re faced with the reality that time is not on our side, we have to make a choice about what to do with the remaining time and resources we have left. This is the common problem facing us all with less than adequate superannuation retirement account balances, and needing to decide how much investment risk we’re comfortable taking.
The Fin Review reported Australian Financial Services Council reported in September 2017 that 1.4 million Australians have their Super in ‘subscale’ default funds. This means some consumers are facing a $170 000 shortfall at retirement as a result of their superannuation investments automatically being put into what it says are ‘underperforming’ funds. The council said, “This performance gap meant a consumer could be more than $170 000 worse off by retirement.”
When thinking about how to best invest super, the question for many people ultimately comes down to a simple one:
Do I have to be brave or do I have to be safe?
We all need time for our investments and businesses grow. Nobody plants a packet of garden seeds today and expects a fully formed apple tree to appear tomorrow. That would be crazy, but crazier still is expecting by doing nothing our future will be anything other than the same as today, or worse (particularly when facing those pesky snakes of inflation and tax).
- As time becomes more precious and the fight for our dwindling attention span increases, the need to learn how to prioritise the areas that need to be outsourced to a professional, and the ones you can afford to get wrong yourself is critical.
How you decide (or don’t decide) to invest your superannuation can have a $170 000 difference to your future. If you encounter a snake along the way like I did, you better be prepared with a backup plan to keep you, your family and your business in the game.
When you have a lot of living to do, time is definitely not on your side.