Monetary Relativity: The Forces That Determine Your Financial Future

In 1905, Albert Einstein published his “Theory of Special Relativity.” Einstein’s theory was remarkably creative as he attempted to explain how observation and perception can be altered based on the speed at which the observer is traveling. Just as Einstein explained how perception can change due to certain variables, the same is true about an individual’s perception and feeling towards money. If we remember Einstein’s famous equation, E = MC2, Einstein solves for energy based on an object’s mass and the speed of light squared. The variables remind me of certain factors that are constantly determining the size and behavior of an investor’s net worth. Energy is like the lifestyle we are currently living and the one we are saving for in the future. Mass can be thought of as the size of one’s net-worth which cannot escape inflation’s gravitational pull. Finally, speed reminds me of an investor’s risk tolerance and the time an individual realistically has left on Earth.

Our lifestyles are important. The way we live our lives and the people we share it with, determines how much we spend. Many people enjoy taking time off and traveling but we all know that one’s traveling experience can substantially vary depending on how a person defines traveling and their net worth. If a person’s travel plans include a two-hour drive to the family’s lake house to sip margaritas and take in the fresh air, those expenses will only be a fraction of the cost to enjoy an annual European wine tasting adventure. How stylish we are, couponing, addictions, impulsive behavior, willingness to acquire debt, and the ability to defer instant gratification are all examples of variables that affect our lifestyle. The most important force working against wealth is inflation. Just as gravity erosion can make mountains shrink, if we are not careful, inflation can chip away at our purchasing power without us even realizing it. Inflation is simply the rising cost of goods and services over time. According to, MSRP on a 1989 F-150 was $11,001. Today, a 2021 F-150 Lariat SuperCrew starts at $47,555! If someone in 1989 planned to retire in 2021 and continue to buy Ford trucks, hopefully their financial plan considered inflation. If it did not, I am afraid the only truck they will be able to afford today is the one they bought back in 1989. It is impossible to prepare and save properly for the future if we are not aware of the lifestyle we are saving for and the amount of money it takes to fund it. Once a future lifestyle is determined and becomes the focal point, it is time to weigh in. What is the mass of our net-worth? Net-worth equals assets minus liabilities or what we own minus what we owe. Knowing what we have is important but what is more important is the way our assets create value or build wealth. We can own stuff that loses value, or we can own assets that over time, create value. One trick to help determine how quickly our assets can accumulate is the rule of 72. The rule of 72 helps estimate how many years it will take to double our money by dividing 72 by the average annual rate of our investment returns. For example, if someone has $50,000 in their 401(K) plan and their average annual rate of return is 6%, then it will take that person roughly 12 years (72/6 = 12) to double their money into $100,000. If that same person adds an additional $500 per month or $6,000 per year on top of the existing $50,000, they will have over $200,000 at the end of 12 years. Compounding interest is powerful. The more we understand it and take advantage of it, the more our future selves will be thanking us.

Finally, how do we know when we have saved enough and how should we be saving? Being that our birth certificate does not include an expiration date, we obviously do not know the length of our financial timeline. However, if we keep track of our expenses, saving habits, inflation, and a sense of how long humans are living these days, we should be able to start piecing together a picture of what retirement will look like in the future. Another important measurement in this equation is our ability to deal with risk during the accumulation stage of life. One of my duties as an advisor is to not only manage wealth but to also manage client emotions and expectations. Imagine if we were going on a long journey to find a treasure and we had the choice to choose different paths to get there. Some routes may get us to the treasure sooner, but the fastest route may not be the safest or most comfortable path to follow. If we are not prepared for the journey, we may get flustered or stressed out along the way causing us to take another path or quit entirely. These same emotions apply to investing. From my experience, when people are emotionally tied to their investment decisions, reason and logic go straight out the window. If we choose to quit or avoid a long-term allocation strategy only to satisfy our emotions during short-term volatility, our investments will suffer tremendously. If our goals rely on an investment return well above inflation but we also expect to never lose money in the process, then it is time for a reality check. Also, if a financial professional ever claims that they can deliver large returns while avoiding down-side risk, they are lying to you. I am the furthest thing from a physicist but there is one fact I believe that even Eisenstein himself would agree with. We will never get to our destination if we have no idea where we are going or how we will get there. We spend countless hours making money but how much time do we set aside to tell our money what to do? How many of us know why we are investing the way we are? Unfortunately, investing for the sake of investing is common. We should all start working on our financial health by focusing on the forces we can control. We work too hard to not enjoy the lifestyle or retirement of our dreams. Much of the journey is taking time to understand the destination and the tools that are available to help us get there. Most people are busy in their careers and family and have no idea what to do. If that is the case, it’s time to get some help. As Einstein once said, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask…” We should never sacrifice our future because we’re too afraid to ask for help. Majority of Americans are either not saving enough or saving nothing towards retirement. It is never too late to start being different. Your future self depends on it!