There is No Free Lunch: STTA

It’s not that hard at the moment to find dumb takes on Twitter. Okay, that’s always true, but it’s especially manifest at the moment if you search for the term, “401k.” Without going into a litany of specific tweets, the overall sentiment is that all of us investors were not only mentally unprepared for a market crash but also morally entitled not to have one. Blame China if you wish. Blame the World Health Organization. Blame President Trump. Blame the U.S. Senators who apparently committed insider trading (yikes!).

You did not cause the market crash, but your stewardship of what God has given you is on you. And as the saying goes in a myriad of disciplines: there ain’t no such thing as a free lunch.

Okay, that’s pithy. What does that really mean? It means that every potential reward in the financial markets has a corresponding risk. More potential reward, more risk. There is no secret financial reward that comes with less or no risk.

Consider this particular range of investment options. As of the time I am writing this (March 23rd, 2020, prior to market open):

• VTI is a total U.S. stock market index fund. In 2019, it gained 30.80%. It has since lost 29.67%
• VXUS is a total international stock market index fund. In 2019, it gained 21.58%. It has since lost 32.06%.
• BND is a total U.S. bond market index fund. In 2019, it gained 8.71%. Year-to-date, it’s gained 0.27%.
• ICSH is an ultra-short-term bond fund. It made 3.18% in 2019. It has since lost 0.76% due to its concentration in corporate bonds, which now suffer from a lack of market confidence.

(By the way, these are based on the trailing year-to-date returns from Yahoo Finance.)

The correlations aren’t perfect, and I could explain the imperfections given the space, but you get the general idea. Higher rewards entail higher risks.

In my post last year about investing, I argued that financial investing is not gambling when at least the following conditions are met:

1. Most importantly, our hearts are clean. We are satisfied with God’s provision in our lives. We are seeking to invest not because we want to hoard and “get rich” but because we wish to be good stewards of what God has provided, not to become a burden upon others, and to help relieve others’ burdens.
2. We have a reasonable expectation that our investments will return a profit. In other words, our investment choices reflect our desire to soundly steward what God has provided us. For example, if we reasonably believe that the U.S. Government will be around in ten years when it’s time for them to pay up on a 2.70% 10-year Treasury bond, then it’s extraordinarily difficult to call this “gambling.” If we invest in the broad stock market with a reasonable expectation that we will receive a return when we expect to sell the investment decades in the future — even when the market will experience many significant dips over time — this also is difficult to characterize as gambling.

Surely in this particular downturn, we have much bigger concerns than our retirement accounts. But for those of us who did think of our accounts, how are we doing? Did the downturn provoke us into sinful worrying? Did it perhaps unveil some underlying sinful greed that has now gone unfed? Maybe it’s the other way around, and we merely saw a buying opportunity, and maybe there’s some underlying greed there as well.

Allow me to encourage a couple of things here. First, do a heart check. Are you satisfied with what God has provided you? Do you feel any unfulfilled, false sense of entitlement as you look at your accounts? Do you suffer from any sinful worry about the future? Do what you must spiritually about these.

Second, do an account check. Does your risk level reflect when you expect to live off the funds? If you are in 100% stocks and you’re retiring this August, you are likely taking way too much risk, and you might have just found out the hard way.

But this part isn’t just cold and non-spiritual. Besides employing good stewardship, some questions are those of the heart.

• Is your high risk level a manifestation of sinful greed? In other words, are you investing to live big or to prepare reasonably and serve others, whether by giving or not being a burden?
• Is your low risk level a manifestation of sinful worry? If you are age 25 and your entire retirement savings is in FDIC-insured savings accounts, you certainly will not lose 30% in a market downturn, but you will also lose much in opportunity cost. You could be worrying too much, but I will not claim to have read your heart by means of a blog post. Examine this for yourself.
• Could your high risk level provoke you to sin in a market downturn? Just as you should not walk physically into a situation where you’re liable to sin, you should not do the same financially.

Check your heart. Check your accounts. And trust the Lord, who actually has served a “free lunch” or two and richly supplies us with all our needs.

Disclosure: Garrett holds — among other investments — VTSAX (mutual fund version of VTI), VTIAX (mutual fund version of VXUS), and ICSH, and is not a professional financial advisor.

Other posts in the Something to Think About series:

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