As I was watching the Super Bowl a few weeks ago, I couldn’t help but think of the phrase that is often used in sports – ‘Defense wins championships’. Ironic that the two teams playing were high powered offenses but it was a defensive play at the end (pick 6 interception) that really sealed the deal.
When it comes to personal finance, people tend to focus on the offense. Think about the proverbial ‘hot stock tip’ or the articles on how to find great mutual funds. Bernie Madoff sold this kind of dream about an investment that only goes up and never goes down.
After all, offense – a long touchdown pass - is a lot more exciting to talk about than defense – a nice tackle for no gain.
But what does defense mean in personal finance?
To me, it means having a strong foundation. Minimizing risk. Avoiding loss. Having adequate insurance. Having your money work efficiently for you.
But losses – whether in investments, or losing one’s job or health can easily overwhelm the ‘offense’.
Being protected or prepared against those losses or risks isn’t exciting. That alone won’t get you invited to the next cocktail party. And I wouldn’t count on being on the cover of Money magazine anytime soon.
However, you will get a good night’s rest….
Answer to last week's trivia question: A - Inflation. It is often called the silent killer but over the estimated 20+ years of retirement, inflation can be a really problem. Inflation overall has been pretty tame, but health care cost inflation is another story. And when you get older, health care spending goes up...
This week's trivia question: For all the talk about taxing the rich (included in Obama's 2010 federal budget), the top 1% of all income earners pay 40.4% of all federal income tax. But what did the bottom 50% of earners pay? Is it?
A - 2.9%
B - 15.6%
C - 28.7%
D - 50%
