top of page
  • Kaitlin Jones

Every Form of Refuge Has Its Price

As we gather with friends and family over the holiday weekend, we might take the opportunity to ask those around us for advice. Whether it’s about relationships, raising children or pets, or managing our finances, we’ve all received our fair share of both gems and duds.

Dave Jones
Dave Jones

With the spirit of independence and community in mind, I’ve been tasked with kicking off our new monthly blog series on good and bad advice. My dad, Dave Jones, was a character of epic proportions, and many have told me that he had an uncanny ability to provide just the right words of advice at just the right time.

As much as I might have denied this fact in my late teens, by my early 20s it became apparent that he really did have this gift. From losing your keys to buying your first home, my father had innumerable perfect nuggets he sprinkled judiciously and always in a timely manner. Now, did he always follow this advice? Not necessarily, but nobody’s perfect. In the spirit of this weekend, I want to impart one piece of advice he often gave, which has had so much application across all aspects of my life and that I still use almost weekly with my clients:

"Every form of refuge has its price."

Yes, that is, in fact, a line from an Eagles song about a beautiful young woman who marries a rich older man to gain financial stability. But as my dad proved many a time, this truism applies more broadly: even safe options have costs, and in taking any option, we must understand those costs and be ready to accept them when they come.

The place I find this most often is in investing. One of the basic tenets of investing is that there is a risk and reward continuum. The more risk you take on in an investment, the more you should expect to be rewarded if that investment pays off. When working with a new client, we do a risk assessment that essentially tries to determine how aggressive their portfolio should be. Almost every new client I work with seems to say, “Oh, I really don’t want to be in anything aggressive at all.” (This is an important time for me to note that we don’t invest in anything crazy—just stocks, bonds, mutual/index funds, and ETFs, in case you're wondering what kind of business we’re running here). And my answer to them is usually, “Well, every form of refuge has its price.

Investing only in “safe” (less risky) investments may seem like the practical and safe choice, but in the end, that choice has a price. Here is an example:

Let’s say you hated the idea of ever losing a single dime by investing any money in the stock market, so you invest only in Treasury bonds, which are typically considered a very low-risk investment. At the time of writing, the current rate on a US Treasury Series I Savings Bond is 4.28%. If you were to invest $10,000 in just Series I Savings Bonds for the next 30 years (assuming the rates don’t change), you would end up with $35,159 in 30 years, a $25,159 increase. The price of this refuge is inflationary risk. While these bonds are returning 4.28%, the 10-year inflation rate for the US dollar is 2.34%, so while you did make money, the money you made just isn’t worth as much. With the increase in the cost of living over those 30 years, you would need $20,015 to purchase the same goods that once cost $10,000 when you first invested your money. This means you only made $15,143 in return.

If you had added additional risk to your portfolio by including some stock holdings, you would have been able to weather significantly more of that interest rate risk because the companies you invested in have the ability to increase their prices during inflationary periods and will therefore outpace inflation by a much larger margin, leaving you with a lot more purchasing power in the future.

Let’s take another example of a “safer” investment, a guaranteed annuity. Annuities offer guaranteed income in the future, and that guaranteed payment can feel like a refuge, but that guarantee comes with a price tag. The most obvious price you will pay for an annuity is the fees themselves, from commissions for the person who sold it to you, to underwriting costs, and any management fees paid to the mutual fund used in the annuity (and most use mutual funds to underpin your investment).

One of the greatest talents of the companies selling annuities is making the explanation of those fees as obscure and confusing as possible. Beyond those fees are the other prices such as the opportunity cost you incur by sinking your funds into an expensive annuity rather than purchasing stocks and bonds directly with your money. What you probably don’t realize is that the company selling you the annuity will likely turn around and use your money to invest in stocks and bonds to generate enough of a profit to pay your guaranteed payment, pay their salespeople commissions for selling you the annuity, cover their payroll, and still end up with enough left over to pay out their shareholders and keep them happy. In doing this, they’ve calculated that they can take your money, invest it just like you could have, and pretty safely accomplish all of the things I listed above.

You essentially just gave them money to do the same investing you could have done yourself for free, but now for a big fee. But you avoided the risk of your investments going down, right?

Well, how truly big a risk was it to instead invest that money yourself? The insurance company you paid for the annuity in all likelihood has more money than you will ever see in your lifetime on the books, and they’ve used all of that money to hire the very best actuaries. Those actuaries have been paid to calculate in fine detail just how risky it is to take your money and invest it in the market and use the proceeds to pay out all of the aforementioned costs, and according to their calculations, it’s really not that risky.

Let’s say that those actuaries are wrong and something catastrophic happens to those investments. If that happens, the company that sold you the annuity would go bankrupt, and you wouldn’t get your guaranteed payment anyway. In reality, what you really paid for wasn't a guarantee; it was just the illusion of a guarantee.

In the end, there really is no such thing as a safe bet; there is risk to everything. Our best bet is to make the choice with the consequences and price we are most able and willing to pay. And if it’s difficult to see or understand what that cost is, it’s probably too high.


Recent Posts

See All


bottom of page