Most of us are our own worst enemy. I know it’s true of me. It’s also true of many of the people whom I serve.
This post is about someone I recently had deep communication with. I changed my client’s name and other details to preserve their privacy, but the story is true.
Betty’s Situation
“Betty” owns a classic asset in one of the best apartment zip codes. She receives social security and income from her debt-free property. For 50+ years, Betty has traveled to a charming French village, which was important to her in her youth. Betty brought home a dashing man from the village a few years ago. They return to the village every year.
A few years ago, Betty asked me to value her property. We did. COVID came, and Betty kept her property instead of selling it. Recently, Betty asked us to value her property again. This time, it was worth 20% more than she had hoped. Betty would like to build her net worth and her cash flow.
What We Recommended
Our team has served many clients with similar problems. Betty’s solutions wouldn’t require any significant financial outlay. She would need to dispose of assets that are inappropriate for achieving her goals and replace them with other assets that would serve her wants and needs.
I explained an appropriate conventional solution that would enable Betty and her lover to continue to enjoy annual visits to France while building wealth. The solution involves adding more units. Within a few years, the asset should be producing more spendable cash flow than she has now. Betty understands her situation and my recommendation but is reluctant to move forward.
The Anxiety of the Solution
Some researchers call this common situation “The Anxiety of the New Solution.” It’s the nagging fear that something about a new solution won’t work or won’t work for you. In Betty’s case, the issue is that it will take a few years for her assets to generate more spendable cash flow.
Here’s how I sometimes deal with anxieties like this. I ask my client if they have ever driven a stick shift. Most have. Then, the conversation proceeds something like this.
“If you wanted to go to the convenience store within a mile, could you do that in second gear?”
“Of course.”
“If you want to go to Las Vegas, would you want to drive only in second gear?”
“Of course not!”
You must put in the clutch to get into a higher gear, which means the car slows down. Just after you shift to a higher gear, the car moves slower than before. Yet, within a minute, it’s moving faster, and your fuel efficiency has improved.
Betty is bothered by the reality that, for a short period, she would have less cash flow.
If the gear-shifting analogy does not persuade Betty, some questions might help clarify her thinking about the proposed solution. Here are some possibilities.
* Do you believe inflation will continue?
* Do you expect that the cash flow from more units will grow faster than fewer units?
* You recall that more units provide more tax shelter, which is, in effect, a government subsidy for acquiring additional value. Right?
* You have concluded that your current equity allocation won’t produce the cash flow you need to meet your goals. Is that right?
There are tradeoffs but no solutions. Betty owns her choices and their consequences. Some investors get stuck when they can’t have the best of all possible worlds. Most investors make better choices when they consider the likelihood of various options.
She might do nothing if she fears debt more than she wants to maintain her lifestyle. Betty may accept her current cash flow instead of trading into an asset which would build her wealth faster and give her more cash flow for decades.
Of course, if she expects to die within three years, keeping her current property makes sense. However, the actuarial tables say half the people her age will live at least 30 more years.
I trust she’ll make an appropriate choice.
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Have you ever felt the Anxiety of the New Solution? How did you deal with it?
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Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”