Should You Be Smart Like A Fox or Wise As A Hedgehog In Your Retirement Planning?
No, it’s not a trick question. Nor a trivial one. Indeed, knowing whether you act more like a fox or a hedgehog can help you improve your approach to retirement planning, making for a more enjoyable pre- and post-career life.
The fox vs. hedgehog debate goes back to a statement attributed to the ancient Greek poet Archilochus: “The fox knows many things, but the hedgehog knows one big thing.” Alluding to that line, the philosopher Isaiah Berlin wrote a famous essay in 1953 titled, “The Fox and The Hedgehog.”
The idea behind the fox-hedgehog comparison is that you can divide people into two groups: hedgehogs, who see the world through the prism of a defining principle or idea, and foxes, who focus more on their experiences and the particulars of a given situation. You could say that hedgehogs are more likely to see the big picture, while foxes get into the weeds.
So what does this have to do with retirement planning?
Well, if you’re a fox, you’re always looking for some type of edge or way to exploit circumstances to your advantage. You track the ups and downs of the stock market with an eye toward getting in before a big upswing or out before a crash. You listen to investment pundits, hoping to score tips on stocks or sectors that are supposedly poised to outperform the market. Chances are you’ve been glancing at what the Dow and the S&P 500 have been doing as you’ve been reading this column.
In your continuing efforts to gain an edge, you’re also constantly on the lookout for exciting new investment opportunities—smart beta ETFs, the Bitcoin Trust, whatever—and revolutionary techniques that can enhance your reitrement-planning efforts. You probably believe that finding the best investments is the single most important thing to do to build a sizeable nest egg, when diligent saving actually trumps savvy investing.
If you’re a hedgehog, on the other hand, you’re probably more apt to believe that successful retirement planning comes down to following a few simple principles: saving regularly (preferably by putting your savings on autopilot), making the most of tax-advantaged accounts whenever you can and, to the extent possible these days, not pulling the trigger on retirement until you feel you have a large enough nest egg to give you a good margin of safety on withdrawals (as opposed to relying on some investing black-magic that’s supposed to help you squeeze more out of your assets).
As for new products and cutting-edge strategies, the hedgehog views them with more than a little skepticism and is more likely to see them as a gimmick or distraction than a can’t-miss opportunity. As a hedgehog, you believe it’s unlikely that the Next Big Thing can significantly improve on time-honored strategies like looking for ways to save a bit more, reining in investment costs and building a basic stocks-bonds portfolio that you rebalance periodically. So you’re more likely to pass on the latest fad, knowing that in the financial world, fads come along pretty frequently, and often leave disappointment in their wake.
Full disclosure: I’m primarily in the hedgehog camp. Thirty years of writing about retirement planning and investing has convinced me that true innovation is pretty rare, and that “sophisticated” strategies is often another way of saying “expensive” strategies. I believe that if you get the Big Things right—you save regularly, invest sensibly, set reasonable expectations and monitor your progress—you don’t have to resort to fancy techniques that too often have the potential to blow up on you.
That said, while we may live in a digital world, we humans are not digital. We’re analog. No one is solely a fox or a hedgehog. We may be more one than the other, but we have elements of both. And I think that whether you consider yourself mostly a fox or a hedgehog, you can learn from the other.
If you’re primarily a fox, for example, you might occasionally want to pull back and take a big-picture look at your retirement planning. You want to be sure that have a sound basic strategy in place and that you’re not undermining it by chasing every new product or approach that comes along. To help you improve your focus, you’ll probably want to cultivate some of the hedgehog’s skepticism.
Conversely, if you’re a hedgehog, you want to be careful that you don’t let your wariness about The New New Thing completely shut you off to the possibility of innovative approaches that may improve your planning and your retirement prospects. Truly transformative products, services and strategies may be rare, but they do come along.
ETFs have helped many investors lower investment expenses and their tax bills. New tools that can help you decide when to claim Social Security—which you can find in RDR’s Retirement Toolbox—really do have the potential for dramatically improving many people’s standard of living in retirement. You don’t want your “hedgehoggish” tendency to view the world from 30,000 feet make you overlook something at ground level that that may prove helpful to your planning. To prevent that from happening, try to think like the fox sometimes.
So the next time you’re contemplating your retirement planning, be sure to think like a hedgehog and make sure you’ve got a good overall retirement plan in place. Then make like a fox and see whether there’s anything worthwhile new or interesting that might help you improve your plan, even if incrementally.
Doing this will help you see from both fox’s perspective and the hedgehog’s. And you’ll reap the benefits of thinking, shall we say, like a hedgefox. (8/25/14)
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at email@example.com.