“Common sense is not common.” That’s a quote attributed to Voltaire. Here’s another one from a less well-known name, George Santayana: “Those who cannot remember the past are doomed to repeat it.” From time to time, it is good to remind clients of lessons based on common sense.

1. We are all getting older. When this happens, we reach an age when we need more medical care. Clients might think they can cut expenses in retirement. They might think they can relocate to someplace with a cheaper cost of living. As long as they are living, they will require medical care. Everyone wants the best care possible, so they may need to go back to someplace where it is available. This costs money.
Concept: All clients should understand paying for medical care will be a larger and larger expense as they get older.

2. Understand paper profits. Here is another good expression: “Money talks. It says goodbye.” When the stock market is doing well, it is easy to measure your wealth by the value and appreciation in your portfolio. The value of your portfolio changes constantly.
Concept: Although it is your account, the profits “are not yours” until you sell and realize the gain. That’s why your account statement lists realized and unrealized gains. The unrealized ones can vanish quickly.

3. Debt doesn’t go away. Stocks can go up and down. Statement values rise and fall. If you owe money on credit cards or a home equity loan, the balance you owe doesn’t get any smaller unless you actively pay it down. Your paper profits might evaporate, but whatever you borrowed you still owe, plus the interest cost of carrying it.
Concept: When times are good and you are making money, pay down debt. It is frustrating to see the money you thought you had (paper profits) vanish but the debt is still there.

4. Reinvesting dividends is important. CNBC made this point in 2022. $10,000 invested in the S&P 500 Index in 1988 was worth $155,000 in September 2022, based on appreciation alone. If dividends have been reinvested over that period, the value in 2022 jumps to $329,000. Reinvested dividends accounted for 68% of the return!
Concept: If your client owns an investment that throws off cash, it makes sense to put those dollars back to work, right back where they came from.

5. The Jones’ don’t care. Many people spend money, often money they don’t have, to keep up with their neighbors. If you get in over your head, your neighbor the Jones’ will not bail you out. They will tell others you managed your finances poorly and did not bother seeking professional advice.
Concept: Embrace financial planning and budgeting, even when you think you don’t need to do it.

6. Don’t buy things you don’t understand. This is one of the lessons preached by Warren Buffet. When you make an investment, you need to understand how the company expects to make money and what needs to happen to make a profit.
Concept: Many investment decisions are joint decisions. Each client couple usually has one primary contact or decision maker. The decision maker needs to be able to explain to others why this was a good investment.

7. A 33% decline requires a 50% rise to recover. Someone once said: “No one ever went broke taking a profit.” Investors often harvest small profits while refusing to admit a different investment has not worked out. If a $100 stock declines 33%, it is now about $66. To “get even” the stock needs to rise 50% from that level. That is a lot to ask.
Concept: It can make sense to hold your winners longer and sell your losers early.

8. Taxes will go up. The Federal government spent a lot of money during the pandemic. They will figure out a way to get it back. There are many levers they can pull. This includes taxing Social Security, changing the estate tax exemption, changing capital gains tax rates and other adjustments.
Concept: Tax laws are complex. It makes sense to hire a good accountant who understands your situation.

9. Prices will stay high because inflation is here to stay. The Federal Reserve has often talked about a 2% inflation target. That is modest, but it still means prices go up. People might complain groceries have gotten more expensive in the past year or so, but an easing of inflation doesn’t mean prices go back to where they were. There are a few exceptions like gasoline, which are dependent on world oil prices, which are an indicator of the strength of the global economy.
Concept: Buy non-perishable staples when they are on sale. Become a better grocery shopper.

10. When something gets too expensive, cheaper providers emerge. Capitalism in action is wonderful in many ways. When the pandemic ended and people rushed to bars on Friday nights to socialize, “happy hour” disappeared. People paid higher prices. When other businesses see packed bars on Fridays, they want to win some of the business. Happy hours gradually returned.
Concept: You don’t need to assume $18 glasses of white wine are the “new normal.” Check out competitors. Someone wants to win your business. They do this by offering cheaper prices.

11. No tree grows to the sky. When the stock market does well for a sustained period, some people think this is the new normal. It isn’t. Markets are cyclical. Other investments emerge. In July and August, banks were offering 5% interest on CDs with FDIC insurance. This can attract money from the stock market because people have been waiting for higher rates for years.
Concept: Remember markets are cyclical. Plan ahead so you don’t suffer huge losses because all your money is committed to the stock market. Diversify and respect asset allocation.

12. Debt is like fat. According to Forbes, about 42% of Americans are obese. This is not by choice. It is easy to gain weight and tough to lose weight. Debt often occurs when you “pay with plastic” while you are out and having a good time.
Concept: Like losing weight, you need to change your routine and activities to make meaningful progress in reducing debt. This is another area where financial planning brings value to the relationship.

13. Free advice is worth what you paid for it. Years ago, we bought into the idea information accessed via the internet should be free. This expanded into advice in general. Many people assume advice should be free. Advice has value. You pay your accountant and lawyer for advice. You usually follow it.
Concept: Free advice is often biased advice. It is trying to sell you a product.

14. Volatility. Here is another good expression: “The market can go up like an escalator and down like an elevator.” The paper profits you slowly accumulated over time can disappear.
Concept: The client might not want to take profits because it will incur tax liability. There are other ways they can protect their profits or hedge their position. Buying put options is one example.

15. The government expects you to exhaust your own resources before they will support you. Having your cake and eating it too is not how the government views long-term care. Before they will cover the expenses (via Medicaid), they want you to have spent most of your own money.
Concept: As clients get older and the probability of needing LTC increases, they need to know how the rules work and what they can (and can’t) do in advance.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.