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Our Edge As A Hedge

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Every 4 years, we go through the excruciating ritual of electing a president, and the process gets murkier with each succeeding campaign. Despite the enormous attention given to this process, large numbers of people simply don’t vote. TV’s “American Idol” garners more votes than some presidential candidates. Citizens of countries where they have no say in the selection of their leaders find this incomprehensible.

Reasons for this have alternately been attributed to everything from apathy to zealotry. There is, I believe, one acknowledged contributing factor: confusion. People have a natural aversion to making a mistake. Inaction is often seen as better than wrong action. In their bid for attention–and ratings–political commentators often shed more heat than light on the campaigns, leaving us not only confused but also with a king-sized dose of disgust.

There is a parallel in our own business. While political writers bask in the limelight every 4 years, financial writers, like the Energizer Bunny, go on and on. But isn’t it odd that as financial gurus in the press have proliferated, the nation’s savings rate continues to decline? Recent studies show our savings rate at the bottom of the industrial nations, despite a booming economy.

No wonder our capital expansions have been financed by the savings of the Japanese, Germans and now Chinese. Could it be that the confusion and seeds of doubt spread by the media’s financial advisors have often served to discourage savers using traditional methods in much the same way that political gurus instill a lack of confidence in candidates? Much of what I read in the financial press deals more with what the columnists believe a person should not do, or watch out for, than encouragement!

Reflecting on this question, I tried to think of people I know who have benefited from financial advice found in newspapers and magazines. In all my years in our business, I cannot recall a single person who has said, “I followed the advice of Jane Bryant Quinn and am now financially secure.” (I use Quinn symbolically, as a typical example of financial advisors in the public media.)

Perhaps you have met such people, but I never have. On the other hand, I have encountered many who use Quinn’s words of caution as an excuse for postponing or rejecting a solid proposal to provide security where none existed.

Insurance is not a product people desire to purchase. It is a character decision, reflective of one’s willingness to accept responsibility for the consequences of future uncertainties. Advice from financial writers that allows readers to retain a positive view of their character is always welcome, even if it means turning one’s back on a real character purchase. If you really don’t want to do something, it’s always comforting to have an “expert” tell you why it would be dumb to do it.

Among the problems I have with many financial writers is their tendency to focus on the “investment du jour.” It’s zero coupon bonds this week, then real estate or precious metals. Seldom is a comprehensive plan set forth that deals with life’s uncertainties. Life is not a series of snapshots, but rather a moving panorama with both obstacles and opportunities. Our products provide for the “what if” that is an integral part of everyone’s lives.

I often think back on the plight of an old friend who followed the wisdom espoused by some financial existentialist. He didn’t exactly follow the advice of one particular person; rather, he became part of that which was “in vogue” at the time. He was a real rocket scientist working on the Redstone rocket and other early space probes. As you might expect, he was well-paid, intelligent and quite competent. He managed his own finances. He bought heavily into common stock, was leveraged in real estate and kept a maximum mortgage on his home. Then came 1968, with cutbacks in the space program and a simultaneous drop in the stock and real estate markets. To make a long story short, he lost his job and his home in Alabama where he worked, his term insurance lapsed because he could not afford to cover it, and his leveraged investments went down the tube. As a Ph.D. scientist, he found himself unemployable; there was no demand for his skills, and he was considered “overqualified” in other fields. His Ph.D. had become a liability. He and his wife returned to Phoenix, where we had originally known them, and his wife returned to the job market to support the family. It was a go-go plan with no hedge.

I believe it was Yogi Berra who said, “Predictions are difficult, especially about the future.” Until such time as uncertainties of all kinds are removed from our future–and that is highly unlikely–permanent cash value life insurance will still be the biggest hedge against the disasters no one can foresee. Our products may not have the glamour of other financial opportunities, but they do have an important edge as a hedge.


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