I had two friends tell me the other day they didn’t care about money issues or money conversations. One guy said there was nothing he could do about things beyond his control and the other expressed a general lack of interest or concern. This sat in my craw. So, bear with me a minute please.
In an investment plan you make assumptions. If you assume X number of dollars and X % rate of return you can figure how much money you will have accumulated on any given date in the future. If your actual rates of return don’t meet your assumed rates then your final dollar figures will be less. It’s that simple.
Using the previous example, pension funds make assumptions to meet their future liabilities. If they make the wrong assumptions and don’t have enough money, it is referred to as “unfunded liabilities”. For those who don’t care about pensions, have a pension or give two cents about those people who do care, please stay with me for a minute more. Odds favor you do or should care about assumptions. Your assumptions as well as the assumptions of others affect you more than you want to know. In fact, pension assumptions WILL more than likely affect you in the near future.
In an article in the Wall Street Journal on August 25, 2016, Steve Malanga wrote, “According to a July 2015 report by the Pew Charitable Trusts, since 2005 the unfunded liabilities reported by state pension systems have risen by nearly threefold from $339 billion to nearly $1 trillion thanks in part to investment shortfalls.” In simple terms, they made the wrong assumptions for rates of return. There are differences in private and public pensions. For sake of our discussion, lets narrow down the major difference.
The article went on to note “one crucial difference is that private pension systems must project the future growth of their assets using a conservative “risk-free” rate of return based on U.S. Treasurys, but public pension funds can adopt a higher rate. The difference, compounded over time, can account for enormous variations in pension asset calculations. Government pension funds on average estimate they will earn 7.6% a year on their portfolios, according to a survey by the National Association of State Retirement Administrators. Using that number, the funds say they are currently about $1 trillion short of the money they will need to fund pension credits that workers have already earned. But if pension systems were required to use a riskless rate, currently below 3%, the shortfall would soar to more than $3 trillion.”
So why should YOU care? A government pension crisis of $1-$3 trillion, a currency war, a mortgage debt crisis, the IMF printing SDR’s and issuing new bonds in a currency that can affect the value of the dollar…what isn’t your problem today can become your problem tomorrow. When the mortgage crisis hit Wall Street and stocks went down 40%, the landscaping business took it on the chin. When property and personal taxes rise to make up for the shortfall in pension assumptions for retired government teachers and firemen, you won’t be able to hide.
Assumptions make the world go around. One of the oldest adages about assumptions has to do with making an ass of you and me but nobody really believes that one anymore: do they? When central banks assume growth rates the numbers go in one ear and out the other. They ALWAYS revise them. What we once considered factual data like last quarters unemployment rate, GDP or inflation rate doesn’t seem to hold up for more than a few weeks before it is revised. I used to think hind sight was 20-20, but I’m pretty sure you can’t even look back and see clearly anymore.
James, the half brother that grew up with Jesus made a great point about assumptions. “Now listen, you who say, ‘Today or tomorrow, we will go to this or that city, spend a year there, carry on business and make money.’ Why, you do not even know about what will happen today or tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, ‘If its the Lords will, we will live and do this or that.’ As it is, you boast and brag. All such boasting is evil.”
So, why should you care about monetary stuff, currencies and whatnot? Maybe you need to ask the Holy Spirit if you should care. Are you leaving God out of your goals and assumptions? Are you making the assumptions that James is talking about? Are you bragging and boasting about tomorrow and that these things don’t matter to you or affect you? Do you assume there is nothing the Holy Spirit can do with and through you?
Are you assuming the creator of the universe doesn’t care? Shouldn’t we care about what He cares about? Are you making certain life assumptions that might not hold true? If your assumptions are wrong, whats the cost of that shortfall for YOU? It’s not always a matter of adjusting your portfolio mix or going to cash. It’s not always just a vote for the person you dislike the least. You can make a difference. Ask the Holy Spirit what He can and wants to DO in and through you.
I encourage you to change some assumptions and care. Look around and remember the assumptions of others have, can and will impact you and your family. James last word on that subject was pointed. He said, “Anyone, then, who knows the good he ought to do and doesn’t do it, sins.”