Responsibility and Investment Returns

What does it mean to be responsible? Does the irresponsible person face some long-term harm in relationships, finances, health, and purpose? Irresponsible individuals can and do destroy their health. They also can create havoc with their family relationships. They tend to lack any meaningful purpose, and they generally have a financial future (and present) that is a path to ruin.

I can be fairly accurate in forecasting someone’s financial future. I can guess as to their readiness to approach retirement prepared by asking a few diagnostic questions that help me understand how responsible they are. The four most important questions are:

  1. Do you have a budget and what do you prioritize in that budget?
  2. Do you have debt in the form of consumer loans and credit card debt?
  3. Do you give a portion of the income you receive to those less fortunate than yourself?
  4. Have you saved (in proportion to your income) in a tax-advantaged account?

The answers to these four questions reveal much about the thinking and behaviors of the individual or the couple. In the end, if the answer to question one is “no”, and the answer to question number two is “yes”, and the answer to the third question is “no”, and the answer to the final question is “no” or “sort-of” then here is my prediction: Retirement will be very difficult.

A responsible person’s finances are marked by living within their means, saving for emergencies, major purchases and retirement, and by paying bills on time. They also create budgets, track spending, and manage debt effectively to ensure financial stability.

Reality Check

As I have helped friends and family there are two ends to the spectrum. The responsible individuals have created a considerable amount of investment assets, even if they have only been taking care of business for a decade. There are others that have very little to show for fifty years of work. When I dig deeper, the four questions above tell the story.

An Example of the Potential

This is a current view of our YTD income for this year, excluding our Social Security. Because of a disciplined lifestyle for the past five decades, our average weekly income from dividends is $3,356. Because I also trade options contracts using those same investments, we average $3,477 in options income per week. So, for the two combined, our weekly income is about $6,800. That isn’t magic and it is the result of being responsible. The sooner you start to be responsible, the sooner you can reap what you sow.