Persuasion reveals science and science reveals persuasion. Today with money.
I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun! The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.
This from an NYT writer turning 60 and thinking about his financial future. Nocera has impeccable business credentials, spending most of his adult life covering finance and business much of it with the Times. Yet, he admits he’s blown his retirement plan and fortunately can still write and make money (he hopes) until he is incompetent, sometime well in the future.
Nocera then relates a conversation with a financial planner who sighs through Nocera’s story. She’s heard it before and Nocera provides statistics about savings for retirement and how much or how little people have put away. Then.
What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.” I laughed, but it’s not funny. “The 401(k),” she concluded, “is a failed experiment. It is time to rethink it.”
So, a smart guy who spent a lifetime covering wealth, income, investing, and saving mismanages his own retirement plan and he finds a financial planner who thinks the 401(k) plan is a Failed Experiment. Yet, millions of people have saved for a comfortable retirement using exactly a 401(k) and basic science of investing. What gives?
Consider Attribution Theory in this story. Nocera breaks many basic retirement investing Rules. He overloads his portfolio in one sector, failing to distribute his risk. He pulls money out of retirement to fix a house rather than saving for those renovations. He gives up some of his personal retirement savings in a divorce. Nocera had to take personal responsibility in all of these rule-breaking decisions, but he concludes with a financial planner saying that the 401(k) is broken. Thus, with an External Attribution – that failed 401(k) plan – Nocera evades all the Internal, self-directed, behaviors he performed over the years that busted his retirement.
The Falling Apples of investment science lie all around Nocera with his broken rules. Hey, he declares, there’s no science with 401(k)! Ignore my tech bubble mania. Forget my raid on retirement to finance today’s pleasures. Skip past financing a divorce settlement with retirement money. And, this guy has a seat at the Cool Table.
All Bad Persuasion Is Sincere.
All Bad Science Is Persuasive.
There is a science to investing. Save. Index invest. Evaluate yearly. Repeat for 20 or 30 or 40 years until you hit your number. Until the Rules change, follow the Rules.
And, never forget. While persuasion is always about the Other Guy, sometimes you are the Other Guy. You always have volition and you can chose to ignore Falling Apples and then believe that science had nothing to do with it.