The Short Game vs The Long Game. How to Frolick Frolicksomely

The single biggest cognitive barrier i have seen to people achieving both identity and financial stability is their failure to understand the short game vs the long game.  So let's hop in...

Everybody worries about their current job, their career progression, their housing position value (or lack of one), their kids private education, their stock market portfolio, whether they should be in alternative assets right now, and the list of short-term financial lifestyle concerns simply becomes dizzying and then an abyss, leading to information overload and decision paralysis, and then an assortment of bad stuff quite often.  I am here to tell you that understood properly, the short end of the game matters far less than you may think.  Far less indeed...

The long end of the game, clearly enough, begins when the short end ends; but when is that exactly?  Well, for the masterful FF, regardless of age or intent, it has already happened.  There is no short game.  There is only the long game.  Our happy FF has understood that the chips get counted down the race track, not at this pit stop.  The short game is a liquidity game - that simple.  If you have the liquidity to cover your short game, then you are playing the long game.  If you are challenged to manage your liquidity requirements then you need to eliminate debt or develop more income, and you are stuck as a victim to the short game until you have that pendulum on the right side of its fulcrum.  The short game is for suckers, frolickers.  I have never owed money past a monthly due date on a credit card in my life.  Nor should you.  It is a game for patsies.  You earn what you earn - live within your means.

So let's talk about how those chips get counted at that distant pit stop...  The astute FF knows that at the end of the circuit when he hops out of his little economic income-providing vehicle he needs some financial substance to allow him to frolick freely.  We live in a world where we are indoctrinated heavily to the belief that we should study, work, save and invest, providing for this eventual thing called 'retirement' that comes when we have white or grey hair, or none, and if we have made canny investment choices this 'retirement' might be quite nice, but if not then 'retirement' might be quite grisly.  If you step back and think about it, it really is the modern life cornerstone of 'chair and whip'.  It governs us in all sorts of weird and wonderful ways as we progress through adult life.

However, the FF's are here to tell you that 'retirement' can be very good and very meaningful and very early too, if you fail to fall into a few very simple propaganda pits. We are going to give you some FF instant-cash pitstops for just that purpose - so you can look at the propaganda pits as they really are.  First let us define the pitstop where our chips get counted meaningfully.  Retirement is not what you think.  It is not the day you finally say to the firm that has employed you or the business you have run 'that is it, i am done today, forever'.  That may be how we think of 'retirement', but that is not what retirement is.  

Retirement, to the FF, is the ability to retire from the short game concerns of life.  He has the ability to generate the liquidity he needs sustainably, passively or semi-passively, without taking significant risk of large losses in financial markets.  His behavior is no longer dictated by the need to generate income from labor or explicit business risk taking or investment risk taking.  He may choose to continue in economic or risk-taking activity of one form or another, but he has reached the long game and he will constrain his appetites to stay in the long game.  The rest is elective.  It is self-expression, rather than an enforced survivalist labor march or risk seeking sprint to try and achieve unrealistic gains in the medium to long run.

The primary pitstop where we check our gas and type pressure for the laps ahead is in fact the age at which we qualify for state retirement benefits.  That is a big cognitive hit.  Think that over a bit...  

Why is it when the government provides us an income rather than one we provide for ourselves through economic activity?  Well, the simple truth is that the only real longevity income insurance that most of us have, the vast majority of people, is that provided by the state.  The day that income insurance arrives is a pitstop day.  That is a pitstop day that the FF has very carefully marked in his plans and has fully funded, fully franked.  It is not the only pitstop day, but it is the big one.  It is the pivot across which the pendulum of other decisions swings.  

Unless you are born with a significant trust fund or are unusually financially successful in life, thus essentially building yourself one, you are basically always at tangible risk of depleting your assets if you have substantial longevity and really ending up relying on government-provided social income or the loving charity of your children, should you have any.  That is just the way life actually is - do not let your pension broker kid you too hard with his protestations of 8% long-run risky asset returns in a 3% growth economy, especially after 30 years of ponzi...  That would be quite unjudged and unwise.  

For example, this particular frolicker does not have a significant pension plan with a stocks and bonds allocation mix - and never has had.  Hold on, readers are screaming, you must be financially illiterate my good fullsome Frolicker, sir!  ... but no, in fact, the classical humble private pension allocation is one of the greatest red herrings of adult life, and i am about to explain to you exactly why...  

For example, yours truly holds a serious pitstop day at age 67, at which time he will accrue eligibility in no less than 3 state pension systems in 3 different reserve currencies, and he may contingently acquire a 4th.  By age 70 he will have acquired the 4th as well.  In our next episode i am going to lay out for you how an aspirational frolicker might avail themselves of a portfolio of state pensions.

Meanwhile, i want you to consider for yourselves whether any financial advisor or wealth manager has ever really talked to you about a portfolio concept in state pensions - i doubt it.  There are no brokerage fees in recommending you to go and get your social entitlements, broadly and globally.  

There are, however, several significant economic wisdoms in a set of state-backed social pensions:- the currency diversification, the longevity insurance feature, and the fact that they are near-perfect inflations hedges, not to mention the asymmetric benefits of spousal entitlements and survivor benefits.  The inflation hedge alone is quite topical today in a way that it has not been since the early 80s, because it is almost impossible to build an effective inflation hedge in regular financial asset classes.  Commodities are better, but an indexed state pension is as good as it gets.

Imagine a life in which you did not have to save for retirement in your 401k, your Superannuation fund, your corporate pension fund, etc ad nauseum.  If you could and did, successfully, great, more frolicking for you, but if not, several states had it covered for you anyway.  This is one core strategy for the experienced FF - accepting the reality of life and its cycle, and making sure that his pitstop day is designed as a payday.

The next ambition of a serious FF, is to add a few more pitstop days along the journey of life that occur a little earlier than his state retirement accrues, to shorten the short game and to lengthen the long game.  We would like the short compulsory labor game to indeed be a short game...  We would also like financial risk seeking to be elective, rather than a desperate attempt to take more long term debt and equity risk to catch up with earlier ponzi players.  The elective long game is the only game we all want to play and we want to play it on our terms for as long as possible.  That is the common human condition.

Now all of this is not to say that the short game does not matter, fundamentally, and we are going to talk in length about how to navigate the treacherous waters of the short game, but the primary point in the short game is to build the long game, to build our pitstop days, and get to them a little more quickly on the track.

Up next, we are going to show you the hidden arcane reality of the multi-national state pension portfolio and exactly why you would benefit from one too.  We are going to show you the financial-life transforming power of social obligations accrued in several countries.  Stay tuned...