Remnant Finance

Thoughts on capital and culture.

Something worth defending.

Defend Your Castle

March 31, 20257 min read

Before I make my point, let's put up for consideration a few current economic headlines that should highlight the need for safety and protection. What is the administration using DOGE to do? They are to slash expenditures by cutting out the enormous buildup up of fat in our budget, saving trillions in annual expenditure. It's literally their mission-statement at the moment, and they appear to have a decent road map for achieving these goals. This is an admirable goal, one that I imagine everyone reading supports.

Now, we know that inflation is the expansion of the money supply per the Austrian school of economics, so how does that money supply expand? It's not, as is often stated, because the Fed turns on the money printers; no, that is, like rising consumer prices, an after-effect of the real cause of money creation: government spending. Congress demands the money, the Treasury sells what paper it can to get there, and the Fed buys the rest, to massively abbreviate the process.

This ever-increasing government spending devalues the dollar, which causes asset prices to inflate, aptly known as 'asset price inflation.' If we look at the expansion of the money supply, and the growth of the S&P500, for example, over the last four or so decades, we understand why our impression of 'the market' is that it can only move up and right, forever. That's because for our entire lives, that has held. Congress has ordered more dollars, to mostly squander, and the money is always there, either by other countries and investors buying Treasury Bills, or via the creation of Federal Reserve Notes courtesy of the lender of last resort.

So when government spending gets slashed, and the pace of expansion slows, or even reverses in an ideal world, what do we think happens to the money supply? And if the market goes up in almost perfect correlation with the creation of money, might we assume the opposite outcome in the destruction of money (deflation)? Ever wondered why political economists are so terrified of deflation? We've made the conclusive case in the past that the average rate of return is a meaningless metric with no projection value in your financial strategy. Of course it remains pervasive in the industry, but think- do you want your one shot at this thing, this post-career phase of your life, however that looks, to hinge on a 10% average rate of return given the factors discussed above? Trump has made clear he is okay with the stock market taking a huge hit in the grand scheme of his goal of restoring the macroeconomic outlook for the broader economy. Remember, the stock market is not the economy, and asset prices have spiraled upwards lately, leaving price discovery and value creation behind. In the overall macroeconomic environment, the stock market is a quite small component by which growth is measured. So is a few years of sideways or negative equities trading possible? How confident you are that the market will go up forever should dictate the degree to which you implement certainty into your strategy. I'm not convinced, thus I plan accordingly. With that foundation in place, let's talk about meaningful protection.

Something worth fighting for.

You hear us frequently describe our framework for the proper financial order of operations as 'protect, save, grow.' You'll hear it many, many more times. That's because we must break through heavily-fortified front lines of the conventional financial marketing campaigns which have us convinced that 'bigger number better, faster, always,' as Austrian economist Ryan Griggs often puts it. You don't need to go out of your way to find such advice, it permeates the financial ecosystem like the overwhelming smell of fry oil at McDonalds. Which is appropriate, as the singular obsession with rate of return is analogous to a fast-food craving, with no thoughts on nutrition or satiety.

It is this drive-thru financial planning, which neglects individual aspirations and does nothing to educate the client, that has yielded the retirement crisis we currently find ourselves in as a nation. How can it be that the first pillar of financial planning is to lock up your money for decades without control or access, in hopes of market returns continuing as they have in the past? That is after all what everyone is supposed to do first, is max out their retirement plans. And that's what people have done, and that's why a generation is realizing too late they have outlived their term policies and must live an indeterminate amount of time on a nest egg whose performance depends on the market going up and right forever. They bought term and invested the rest, perhaps, and now they have no certainty in their plan. They have a pile of assets which they must liquidate in some strategic manner, but they lack the financial education necessary to know how to safely execute such a drawdown strategy. So they must continue to rely on the same advisor who put them in that predicament.

In short order I can think of a baker's dozen scenarios which have a reasonable likelihood of happening and which would derail most financial strategies. Let's throw out a few that ought to be considered in the planning discussion, whether you are starting your earning years or wrapping them up. What if the market trends sideways for two decades, like it has in Japan? What if you are determined to be at fault in an accident and are sued for $2 million? What if you become disabled and can no longer earn, so that term policy doesn't pay out but you still must consume resources? What if the market does what it did in 2022 right as you are planning to start your drawdown strategy? What if bonds no longer act as a counter-weight to stocks and they both move down together, as we saw last year? What if the government sees ripe opportunity in that giant, juicy pot of money sitting idle in qualified plans? What if the tax code changes again (after all, it must change this very year)?

I'll say it, conventional financial planning is a shit strategy. In fact, I think strategy is too generous a description, as that implies some level of understanding of what is happening and why. How many externalities could we inject into the situation that would unravel the entire plan? How many things have to go right in order for that pile of assets to survive intact their unknown lifespan? Who will they call when they realize too late that the projected portfolio balance they were shown when they bought term and invested the difference was before taxes and a modest 1% management fee? Were they shown that a 1% fee over three decades would chop that projected balance down by a third? Or how average rate of return bears no predictive relevance on future projections due to the erroneous assumption of only positive compounding balances?

When we say over and over that protection and savings come before growth, we are patching each of the holes identified above in the CFP discussion. We must capture the economic value of certainty, injecting guarantees into our plan. When we know that all of the eroding factors above cannot knock out our principal, we have a better position from which to grow. Our savings are the castle, and protection is the moat. You can't expand a kingdom without a well-protected castle, else you'd simply be venturing around opportunistically looking for battles. We need something to defend, a safe harbor for resources that we acquire in battle (our risk-taking growth assets). This is where we position the life insurance contract, which optimally performs both the protect and save functions.

To follow the typical advice of relegating insurance to merely a short-term function till assets are sufficient to replace any loss incurred is to ignore the value of certainty, the power of leverage, and the Biblical decree to leave an inheritance to your children's children. It's time we stop taking the ticket, the one which promises short term relief at the cost of future uncertainty. The only life insurance policy that matters is the one in force when you die. Is your castle properly defended in its current configuration?

Rough up your sword.
Economic Insurrectionist, Wall Street Secessionist, & NNI Authorized Infinite Banking Practitioner

Hans W. Toohey

Economic Insurrectionist, Wall Street Secessionist, & NNI Authorized Infinite Banking Practitioner

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