The ancient Chinese military strategist, Sun Tzu, wrote, “Know your enemy”  a few thousand years ago – surely before the birth of Christ! I would adapt it a little for today’s usage and say “Know your enemy and know yourself and you need not fear battles.”

I have not read the Art of War  recently, and do not have enough recollections even if I read it. However some of the things said in that book keep coming up and one of them is this ‘know your enemy’. And of course the famous Pogo lines (as also Asterix) when he says “I found who is the enemy” “Its US!”.

‘Know your enemy’ – means in a strategic game (like chess or tennis) you need to know your opponent as well as you know yourself. Not knowing about the game or the opponent can cost you the match. Is Retirement Money management a game? What is the game and who is the opponent? Assume it is a game and say “running out of corpus when you are alive” is the enemy, still it does not help. Knowing a lot about ‘running out of corpus’ does NOT guarantee success in retirement finance. Knowing a lot about yourself is a must if you have to win.

Unlike in a game – chess or Rubik’s cube you can make a nice set of rules by which you can win. And in Rubik’s cube there is no enemy – except time if you want it. You can learn it. If you cannot solve the Rubik cube why do you think you can understand a far, far more complicated thing like financial planning and Retirement planning? It is not easy. It HAS TO BE LEARNT. Remember, it has nothing called uncertainty, but retirement planning has.

So we think buying an annuity, doing a swp, creating an income portfolio, etc. are enough to plan our retirement. Not true. The uncertainty over 35 years is not easy to estimate. Look at LTCM if you want to see how intellect and experience could not tackle uncertainty. One wrong assumption, and it brought the financial world to a stand still for sometime – apart from ruining the owners and backers.

Risk is funny. You can do all right things and fail. You can do all wrong things and succeed. We are likely to learn a lot of wrong lessons and that can hurt.

IMAGINE you retired in 1992 with a 80% portfolio invested in shares. In 1993 you lost 40% of your portfolio. Just vanished. Now it would have taken you 10 years to get back to your capital. However in a worse case you may have just sold ALL THE SHARES that you had and put it in debt securities – and lost a pile to inflation.

On the other hand you retired in 2001 and invested just 50% in shares. In 2007 you may have had 90% in shares. Assume you LUCKILY re-balanced or bought an annuity, you will look like a genius.

Sometimes the force is with you. It was not there with LTCM. Lets stop calling it strategy.