5 Days, 5 Months, 5 Years to Fiscal Health
June 11, 2023
When Silicon Valley Bank in part blew up because the bank mismatched what it was buying (longer-term bonds) with what it was covering (short-term deposits), it made me think about how sometimes we often don’t pay appropriate attention to time horizons.
We focus on the things in front of us, even if we can’t do much about them and they may not have long-term meaningful impact. What should investors have done about the debt ceiling? Unless you are a day trader, the most likely answer is if your savings and investments are matched appropriately with your time horizon, then nothing. Why? Because even though the potential government default was consistently the news of the day, there was not much to do about it. You would have had to make two correct calls: to sell out before things were settled and to buy back once a resolution was reached.
So here is a tool to help you think about your financial decisions: Will this matter in five days, five months, five years?
One of our clients was having a challenging year in their business and, in a panic, wanted to get rid of a property they owned. They commented that it had gone up in value and they could get out from under it. Great. Except when we stepped back and talked about why they bought it, it was not to make quick money on it. It was because this was where they could see themselves retiring, getting away in the winter, and currently having a respite from the very business that was causing them such stress in the first place. Since they could afford to own it, we talked it through and decided to hold onto it for another year so they could get enjoyment out of it and reevaluate then. Nothing will have changed in five days. In five months, they will get a better understanding of where they are at. And I suspect in five years they will be using the property exactly as it was originally intended when they bought it.
Another client was anxious about the debt ceiling and wanted to get out of their investments. They were appropriately invested for their needs and time horizon. As we talked through the issues, they felt they still had to do something to allay their fears. So we worked through what was the least they could do. We raised a little more cash in their accounts. While it was more than they needed, it was less dramatic than moving everything into cash as they originally suggested. Even if you rationally know you are fine, sometimes the five days feel so much bigger than the five months and especially the five years, you feel like you have to do something. If that’s the case, do the tiniest bit you can.
The five days, five months, five years also applies to accelerating things that you keep putting off. Financial planners often focus on how people who overspend justify what they are doing. But there is also a concern for those who don’t spend what they can. One of our clients wanted to bring their adult children and grandchildren on a big family trip to celebrate an upcoming anniversary, but were reluctant to spend the money. We worked through how they could afford it. Amazingly, the trip ended up exceeding their expectations. Unfortunately, a couple of years later, one of the partners developed Alzheimer’s. Had the trip been delayed five years for that next anniversary, they would not have been able to take it.
This concept also works for anticipating things coming up. If there is something that you are wanting to do or get, the advantage of scheduling it in advance — five months out, for example — is that you have several months to look forward to it.
We often discount the future. It’s why it is easier to spend rather than save. But neither good nor bad things last forever. By looking out over multiple time horizons, you will be better able to keep things in perspective and manage your future.
- Ross Levin
This article originally appeared in the Minneapolis Star Tribune on June 11, 2023