Sunday, December 10, 2017

Which Elevator Do You Ride?

Is it worth the ride to the top in an elevator whose cable is about to snap?

I had a dream the other night.   A reader had chastised me for saying that regular investment in a diversified portfolio that is re-balanced over time (as you age) is probably the best bet for working middle-class people to fund their retirement.  He argued that only wild risky investments were the way to "get rich" and he may be right about that.  Although according to statistics, my dull-and-boring technique has put me in the top 1% of wealth worldwide and top 5% in the USA.  And I'm pretty grateful for that.  I'm not one of these people who says, "I'll just work until I'm 70" - in fact, I am retired at 57.

But anyway, this must have been rattling around in my brain, as I had a dream about elevators.   Suppose you were trying to climb a tall building, one step at a time.  It is a tedious task, and you have to carry a load on your shoulders (all those loans you have) at the same time.   Day in, day out, one step up the stairway, and maybe after years of hard work, you end up on the second or third floor.  Doesn't sound like much of a good deal.

But suppose there was an elevator you could take?   It would take you up several floors without much work on your part.   This elevator represents the idea of investing money - putting money aside so that it works for you, elevating your net worth with no effort on your part.  Much better than slogging up the staircase.

But suppose there was also an express elevator, that promised to take you right to the top floor penthouse?   Express right to the top, step this way!   There is a catch, though.  The cable attaching this elevator car is frayed and weak.  It may snap at any minute.   You may make it to the top, or go shooting down to the basement, to be crushed in the wreckage.   Do you take that chance?

Maybe this is a flawed analogy, but again, it was a dream, and dreams are rarely logical.  But it struck me as apt.  My reader wants to "get rich quick" and take that express elevator to the penthouse.   And it may get him there, but odds are, it will likely land him in the basement.

Slogging up the staircase with a heavy backpack of loans to pay doesn't seem like much of a good deal, either.

P.S. - Yes, the analogy is flawed, particularly since elevators rarely come crashing to the ground, due ot the use of multiple cables, counterweights, braking systems, fail-safes, and the mechancial and air friction that slows them down naturally.

Many years ago, (according to company folklore) we did have a hydraulic elevator fail at GM, which injured several executives, when the car crashed into the basement and the shock absorbing springs that were supposed to cushion the blow instead poked through the floor of the car.  Seems the hydraulic cylinder - buried many stories beneath the ground, had started leaking, and the "maintenance man" just kept adding hydraulic fluid, never bothering to think where it was going.  The cylinder rotted out and the elevator fell - but again, not in a total free-fall, although several were injured.

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