The Trouble With Hindsight
"Because the Past Is Just a Good-Bye"
May 12, 2022 - Back in the days when automobile travelers relied on paper maps to help them navigate the nation's highways and byways to their desired destinations, it wasn't uncommon to have the planned route highlighted so the navigator (usually riding shotgun) could easily advise the pilot (aka driver) as the journey progressed.

No navigator worth their salt would reference the portion of the map already traversed to help guide the vehicle to its intended destination. It just wouldn't be helpful.

Think of the countless other examples in life where looking backward serves no useful predictive purpose:

A child's sudden 6" growth spurt doesn't forecast a career in the NBA.

An NFL team winning five straight league championships doesn't ensure continued dominance. (Hello, Browns fans!)

If you make a U-turn after exiting a freeway, chances are you'll see a "Wrong Way" sign staring you in the face.

False Sense of Security

Yet, in the financial world, you'd be hard pressed to find ANY financial advisor who doesn't, at some point, reference market history in a discussion about investing.

"Invest with me and, if the market performs that same as this index has over the past X number of years, you can be THIS wealthy."

These discussions always carry the standard "past performance does not predict future results" caveat. In addition to this being helpful, sage advice, it's also legally required by the Securities and Exchange Commission (SEC).

Full disclosure: I'm a sucker for financial charts myself and frequently use them in my own practice and in my educational efforts. I'm not anti-market history by any means and I do believe charts and "what ifs" can serve a useful purpose when planning one's future.

I just think caution is urged since putting too much faith in what has happened in the past can lead to misery if history doesn't repeat itself.

An Example

For those settling large personal injury lawsuits who often only get "one bite at the apple," it's even more crucial they tread gingerly.

Imagine this scenario:

  • "Brennan" settles a large personal injury lawsuit.
  • He rejects the adjuster's structured settlement offers and chooses an all-cash settlement instead.
  • Brennan's research reveals the DJIA has averaged 8.58% annually over the past 16.5-year period.
  • Confident, he invests $250,000 of his personal injury settlement money into a fund that mimics the DJIA. (He's still working and plans to retire in 16.5 years)
  • Doing the math (and not counting fund fees and expenses, taxes, offsetting losses, reinvested dividends, etc.), he estimates his account will grow to $1,024,676.49 in 16.5 years.

This is all fine and dandy until we add one more "what if" to this hypothetical:

  • It's November 1965.

Fast forward sixteen-and-a-half years. Brennan, eager to comfortably retire, looks at his annual statement only to have one of those Scooby-Doo moments.

Only for him, there's no Fred, Daphne, Velma, or Shaggy to the rescue.

That's because all that sixteen-and-a-half years of market hindsight he based his investment decision on originally was meaningless when, over the course of the next sixteen-and-a-half years the market showed a steady downward trajectory, to wit:

  • From November 1965 to April 1982, the DJIA LOST an average of 7.29% per year.
  • Brennan's $250,000 investment became $74,840.80.

Structured Settlements Eliminate the Guess Work

After listening to me extol the benefits of structured settlements for more than thirty years, it should come as no surprise to anyone that I take this opportunity to remind our readers that structured settlements remain one of the safest, surest financial bets out there.

Whether tax-free (for physical injury lawsuits) or tax-deferred (for non-physical injury disputes), traditional structured settlements provide GUARANTEED returns and are not impacted by market performance.

And for those who still like exposure to the market? Well, we have structured settlements options for you, too. Most of ours, however, have guaranteed floor levels of income making them superior to traditional market investing.

Safety First

So, before you make your next investment decision, ask yourself one especially important question:

What if 2022 is 1965?

Hindsight may be 20/20, but its value is limited when trying to use it as a basis for decision making going forward. Helpful? Yes. But too many things outside our control factor into what will happen in the future. Therefore, adding a healthy dose of restraint to one's evaluative process is always prudent.

Don't risk money you cannot afford to lose. Consider structured settlements and annuities for your fixed income needs when the opportunity arises.

Then, take your chances in the market with the remainder.

Want to learn more on related topics?
Thank you for the opportunity to be of service and best wishes to you for continued success in your personal and professional lives.
Dan Finn, CPCU, MSSC®, RICP®
Master's Certified Structured Settlement Consultant®
Retirement Income Certified Professional®

"Building lifetime client relationships!"
CA Insurance License: 0A96173