2992: Sensationalizing Risk by Dave of Accidental Fire on A Rational Approach to Financial Independence

[00:00:00] [SPEAKER_00]: This is Optimal Finance Daily, Sensationalizing Risk by Dave of AccidentalFire.com

[00:00:08] [SPEAKER_00]: Modern media has a way of sensationalizing things, if you haven't noticed. This is probably because it works and it's good for views, which is good for advertising dollars.

[00:00:21] [SPEAKER_00]: Combine that with the phenomenon of things going viral on social media and you have our current media landscape.

[00:00:28] [SPEAKER_00]: A messy and distracting soup of clickbait, nonsense, cute cat videos with some actual real substantive things mixed in.

[00:00:38] [SPEAKER_00]: You of course are left to your own vices to find substance, but hey, at least the cat videos are good.

[00:00:44] [SPEAKER_00]: One of the most sensationalized topics of all is child safety.

[00:00:49] [SPEAKER_00]: News flash, there are things out there that can injure or even kill your children and you need to know about all of those things.

[00:00:57] [SPEAKER_00]: As if knowing about them will magically prevent them and assure your child makes it to adulthood with nary a scratch or scar.

[00:01:05] [SPEAKER_00]: Sure, in some cases knowledge can perhaps prevent injury or even death,

[00:01:09] [SPEAKER_00]: but don't fool yourself into thinking you can eliminate risk from your child's life.

[00:01:14] [SPEAKER_00]: If you want to put your kid in a bubble, go at it.

[00:01:17] [SPEAKER_00]: I can guarantee though, he or she won't be fun at parties later in life.

[00:01:23] [SPEAKER_00]: Anywho, two weeks ago the news surfaced that many blinds, of all things, have injured and even killed children.

[00:01:31] [SPEAKER_00]: Of course, so have stairs, dogs, trees, lawn darts and amusement park rides.

[00:01:36] [SPEAKER_00]: And don't forget water.

[00:01:38] [SPEAKER_00]: But because a good viral clickbait story was apparently needed on that particular day,

[00:01:43] [SPEAKER_00]: some genius decided to implant terror into the minds of decent mini blind owning parents across the world by publishing these numbers.

[00:01:53] [SPEAKER_00]: Between 1990 and 2015, nearly 17,000 kids younger than six were injured from mini blinds and 271 died.

[00:02:03] [SPEAKER_00]: It worked.

[00:02:05] [SPEAKER_00]: It immediately trended to the top of Facebook and Twitter.

[00:02:08] [SPEAKER_00]: And like famished sharks discovering a whale carcass, major TV news outlets then swarmed on it.

[00:02:15] [SPEAKER_00]: They no doubt felt self-congratulatory.

[00:02:18] [SPEAKER_00]: Not because they had silly notions of helping anyone, but because they knew they just boosted ratings.

[00:02:25] [SPEAKER_00]: Here's the deal.

[00:02:26] [SPEAKER_00]: 17,053 children under six years old died in car crashes during that same period.

[00:02:33] [SPEAKER_00]: Car crashes are the leading cause of death in children.

[00:02:37] [SPEAKER_00]: When's the last time that story went viral?

[00:02:39] [SPEAKER_00]: I can comically see a frantic mini blind owning but otherwise peace loving parent after seeing the viral sensationalism of the day,

[00:02:50] [SPEAKER_00]: taking down said mini blinds and driving them back to the store with kid in tow to exchange.

[00:02:56] [SPEAKER_00]: Of course, not realizing that they and their kid are far more likely to get seriously hurt or die during the drive than they are by the newly evil doer blinds.

[00:03:08] [SPEAKER_00]: Now, before anyone accuses me of being a heartless, inconsiderate jerk,

[00:03:13] [SPEAKER_00]: in no way am I diminishing the deaths of 271 kids over a 26-year period.

[00:03:20] [SPEAKER_00]: Those are real families that lost kids and that's tragic.

[00:03:24] [SPEAKER_00]: I'm simply stating facts that there are far more serious day-to-day threats to children that for various reasons get ignored.

[00:03:32] [SPEAKER_00]: I guess they don't make good clickbait.

[00:03:35] [SPEAKER_00]: To get to financial independence, you need to examine your risks honestly and objectively.

[00:03:42] [SPEAKER_00]: What are the perceived risks that can hijack your journey to FI?

[00:03:46] [SPEAKER_00]: Are they the real risks to worry about?

[00:03:50] [SPEAKER_00]: How do you know?

[00:03:51] [SPEAKER_00]: Sure, the stock market can and likely will correct, probably in a big way.

[00:03:56] [SPEAKER_00]: You can't of course predict when, but you can diversify your investments better to mitigate some of that real risk.

[00:04:03] [SPEAKER_00]: But it's easy to get blindsided by perceived risks that are far less likely than real ones.

[00:04:10] [SPEAKER_00]: Let's take the 2008 recession as an example.

[00:04:13] [SPEAKER_00]: As the market kept plummeting and things kept looking worse, the perception was that there was no end.

[00:04:20] [SPEAKER_00]: Most thought it would keep going and accordingly pull the money out of stocks.

[00:04:24] [SPEAKER_00]: Well, the risk of that endless plummet was not real.

[00:04:28] [SPEAKER_00]: It couldn't have been.

[00:04:29] [SPEAKER_00]: Unless you believed in the end of America and capitalism in general, which at the time you may well have.

[00:04:36] [SPEAKER_00]: But the perceived risk made people behave in a way that they took real risks.

[00:04:42] [SPEAKER_00]: What were the real risks they took?

[00:04:45] [SPEAKER_00]: They missed out on all or part of the huge boom in stocks that took place in the years after the recession.

[00:04:52] [SPEAKER_00]: Immediate threat or long-term threat?

[00:04:56] [SPEAKER_00]: Most people seem to focus on the possible short-term threats to their financial security and ignore the longer-term ones.

[00:05:03] [SPEAKER_00]: A lot of my buddies work for the federal government.

[00:05:06] [SPEAKER_00]: And for whatever reason, they're often worried about losing their jobs.

[00:05:10] [SPEAKER_00]: First off, you have to try very hard to get fired from a federal job.

[00:05:15] [SPEAKER_00]: It's well documented.

[00:05:17] [SPEAKER_00]: And secondly, federal government layoffs are pretty rare and frankly not worth worrying about.

[00:05:23] [SPEAKER_00]: It's a very minor risk.

[00:05:26] [SPEAKER_00]: What's their real risk?

[00:05:27] [SPEAKER_00]: Most of them don't have enough savings and don't even have emergency funds.

[00:05:32] [SPEAKER_00]: I know because they told me.

[00:05:34] [SPEAKER_00]: Yet they're worried about being laid off from a government job.

[00:05:38] [SPEAKER_00]: Maybe your real risks are in figuring out how you're going to pay for care for an elderly parent.

[00:05:44] [SPEAKER_00]: My situation actually.

[00:05:46] [SPEAKER_00]: Or maybe you have a two-year-old and your real risk is to pay for college 16 years down the road.

[00:05:52] [SPEAKER_00]: But don't let the near-term risk of a stock market downturn, again which is increasingly likely, divert your attention from those real risks.

[00:06:03] [SPEAKER_00]: As stated before, sure, you need to prepare and position yourself for that market downturn with a low-cost and well-diversified portfolio.

[00:06:11] [SPEAKER_00]: There are plenty of posts from personal finance bloggers that go into great detail on how to do this.

[00:06:18] [SPEAKER_00]: But don't let that near-term risk blindside you, pun intended, to bigger risks down the road.

[00:06:26] [SPEAKER_00]: In sum, there are indeed tons of risks in life.

[00:06:30] [SPEAKER_00]: To stay on track financially, you should assess the likelihood of a particular risk as compared to others,

[00:06:37] [SPEAKER_00]: especially with the timelines involved, and act accordingly.

[00:06:41] [SPEAKER_00]: I'm no guru, but I'm pretty sure that approach works for lots of things in life.

[00:06:51] [SPEAKER_00]: You just listened to the post titled, Sensationalizing Risk, by Dave of Accidentalfire.com.

[00:06:58] [SPEAKER_00]: You sign up for something, forget about it after the trial period ends, then you're charged, month after month after month.

[00:07:05] [SPEAKER_00]: The subscriptions are there, but you're not using them.

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[00:08:04] [SPEAKER_00]: Whenever I think about risk and fear, I recall a book I read many years ago called The Science of Fear.

[00:08:11] [SPEAKER_00]: Why we fear the things we shouldn't and put ourselves in greater danger.

[00:08:15] [SPEAKER_00]: The author argues that we tend to fear things that are statistically unlikely to harm us, such as airplane crashes or shark attacks, while ignoring far more probable threats, such as heart disease or car accidents.

[00:08:30] [SPEAKER_00]: Our instincts and media often exaggerate the dangers of rare events, leading to irrational fear.

[00:08:38] [SPEAKER_00]: I think this concept translates nicely to what I notice around financial fears.

[00:08:43] [SPEAKER_00]: I know many financially secure or even financially independent people who fear running out of money.

[00:08:51] [SPEAKER_00]: But what they should probably fear is running out of life.

[00:08:55] [SPEAKER_00]: At a certain point of financial security, your risk flips from running out of money to running out of time.

[00:09:02] [SPEAKER_00]: I think many people are attracted to the concept of financial independence from a place of scarcity.

[00:09:08] [SPEAKER_00]: They think more money will make them feel safe.

[00:09:12] [SPEAKER_00]: But there's a disconnect here.

[00:09:14] [SPEAKER_00]: Money is an external circumstance, while safety in a psychological sense is a state of mind to be cultivated.

[00:09:23] [SPEAKER_00]: Many of us may come to realize that we're asking our money to do more emotional labor than it's capable of.

[00:09:31] [SPEAKER_00]: And that'll do it for today.

[00:09:32] [SPEAKER_00]: Have a great rest of your day.

[00:09:34] [SPEAKER_00]: And I'll be back with more tomorrow, where your optimal life awaits.

[00:09:38] Thank you.

[00:09:38] Thank you.