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Investing for (or in) retirement gets harder
Saturday, February 06, 2010
The newspapers are full of stories about how baby boomers who have squirreled money away are rethinking their investment approach, evidence coming from last year's net outflows from stock funds and the fascination that many retail investors now have with bonds.
With the combination of an increasingly "risk averse" baby boomer crowd that is rapidly approaching what they once thought was retirement age and after multiple collapsing asset bubbles seen over the past decade, you'd have to think that investing for retirement is now undergoing some fundamental changes - and these aren't the kind of changes that the folks on Wall Street will probably like.
A number of stories over the last few days have helped to make this point, starting with a USA Today report in which the lead interview subject makes it quite clear that he's had enough.
Forty years of investing and that's it - it's hard to blame Martin for his decision, but it's equally hard to understand how investing as we've come to know it since the mid-1980s can continue.Near the stock market low last spring, with his losses nearing $200,000, Martin Blank, 67, a Florida retiree with four decades of investing experience, sold most of his stocks.
He liquidated 75% of his stock funds. He hasn't put that cash back in the market. And doesn't plan to.
That emotion-driven decision, made with his wife, Linda, nixed any chance of profiting from the 63% rally that began shortly after selling out in a state of anxiety.
But Blank has no regrets: "I have no desire to attempt to make back what I lost."
Recall that it was back in 1984 that 401ks were first introduced in the U.S. and ordinary folks were first given a modest amount of control over how their retirement money was invested. That morphed into near complete control years later and this all worked quite well up until the bull market in stocks ended in 2000.
The Christian Science Monitor looked at how prepared the baby boomer crowd is for retirement in this story and came away unconvinced that the "golden years" will be very pleasant for many.
I don't know about you, but this whole "double-down" thinking by investment advisors seems fraught with risk. Sure, doubling down last spring would have been a great idea, but there are probably a lot more investors like Martin Blank in that first story above than there are those who have the stomach to "buy when there's blood in the streets".The leading edge of the baby boomers – the postwar generation that led the way on everything from war protests to yuppiedom and two-income families – is about to experience another first: postcrash retirement.
With the first wave of boomers turning 64 this year, they have little time to make up their losses from the recent debacle of stocks and housing. Not since the late 1930s have workers on the cusp of retirement faced such a big one-two punch.
So how are they handling it? Not well. It's almost become a cliché to say most boomers haven't saved enough for retirement. Nearly a quarter of those who turn 50 this year say they haven't even started saving, according to a poll in January. Here's the surprising part: According to some experts, even those who have managed to stash away some savings must be careful not to invest the money too cautiously.
With life spans increasing – and many boomers dreaming of active retirements, among other factors – some advisers suggest that near-retirees keep a sizable holding in stocks. The old adage – subtracting one's age from 100 to get the proper stock allocation – just doesn't apply anymore, this camp believes.
Even Jason Zweig in this piece from the weekend issue of the Wall Street Journal seems a little down on the whole idea of people navigating the years ahead using what has passed for conventional wisdom when it comes to investing.
Where do you go from here?For many investors, the market's turbulence hasn't just destroyed wealth. It has shattered their faith in the financial system itself.
Consider Philip Eberlin, 56 years old, who runs a woodwork-restoration business in Chicago Heights, Ill. Trading hot stocks a decade ago, Mr. Eberlin got burned on picks like Krispy Kreme and Tyco. In 2007 he got back into stocks, only to take another hit.
"Having been burned twice in 10 years," says Mr. Eberlin, he now has about 80% of his family's assets "protected from the market" in certificates of deposit and fixed annuities. "I don't have trust in Wall Street to help the small investor in any way, shape or form."
Mr. Eberlin isn't alone. Late last year, Decision Research of Eugene, Ore., asked Americans how much they trusted bankers and other Wall Street leaders "to reduce the risk of the financial challenges the country is facing now." On a scale of 1 to 5, with 1 meaning no trust at all, the rating averaged a paltry 1.7.
On the one hand, it's great that people have the amount of control that they have over their own retirement planning but, on the other hand, retirement dreams are now fading fast for millions of Americans and we've probably got at least a few more years before this secular bull market in stocks is over.
If only more people had sold their stocks ten years ago and bought gold, there would be far more happy retirement stories today.
We are still long-term fans of the commodity complex and precious metals but again, the charts are indicative of a further correction in coming weeks and months so keep your powder dry and be ready to add to long-term positions in the areas of the investment arena that are in secular bull markets.
Since January of 2005, payrolls have been revised lower by another 961,000 after further declines of 545,000 in 2008 and 617,000 in 2009, the bulk of which were adjustments to the birth-death model spanning the 12 months ending in April of 2009.
Whether on Wall Street or in Washington, the biggest frauds often are the perfectly legal ones hidden in broad daylight. And in terms of dollars, it would be hard to top the accounting scam that Obama’s budget wonks are trying to pull off now.
In a bit of hopeful news, the originally reported November job gain of 4,000 - the first net increase since December of 2007 - was revised substantially higher to 64,000.
Construction employment fell by 75,000, a full 60,000 of this total coming from the commercial building sector, while financial firms reported 16,000 fewer workers and the leisure and hospitality sector shed 14,000 jobs.
According to Rothbard, bank failures averaged about 700 per year throughout the 1920s. Since the "Roaring Twenties" weren't all that good for farmers, the primary customers for lenders at the time, about three percent of banks failed every year, this total doubling in 1930 during the first full year of the Great Depression.
(The situation is reminiscent of) Lehman Brothers, that seemingly unimportant New York investment bank whose September 2008 bankruptcy led the world into a crisis that is still affecting us. First came Lehman and the banking crisis, now it's Greece and its national crisis. History is repeating itself.
Of course, Greece's trade deficit only compounds their troubles and lying to the EU about their finances probably didn't help the situation either, but, in many respects there are much bigger budget deficit problems around the world.
As compared to 2008 and early-2009, equity markets have been relatively calm over the last nine months but, somehow, that doesn't look like it's going to last. After net outflows from stock mutual funds last year by Mom and Pop investors, the early part of 2010 has seen that trend reverse a bit, however, with heightened volatility, don't be surprised if that flow of new money is short lived.
The European Commission has ordered Greece to slash public spending and spell out details of its austerity plan within "one month", invoking sweeping new EU Treaty powers to impose a radical shake-up of the Greek economy.
For example, with the near-vertical drop in the price of gold in recent minutes, what might have seemed like a bargain price a month or two ago now all of a sudden looks like it might be just a way point to triple-digit prices.
Instead of a crowd that included President Bush, one cabinet member, two former Federal Reserve chairmen, and members of Congress, today's ceremony was a staff-only gathering where the only one in attendance 
The number increased by nearly 26 percent from the 320 default notices recorded in December 2009, and more than 95 percent from the 206 notices recorded in January 2009.
A mere fifteen percent, meanwhile, say their local market will get worse over the next year. That's an 11 point drop from the 26 percent that expected their local market to worsen in December of 2008.
Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.
While the value of all spirits sold was essentially flat at $18.7 billion in 2009, volume increased about 1.4% as 
Importantly, the ability of companies to increase book value over time has been a critical determinant of long-term earnings growth, and is likely to be even more important in an economy where debt financing is increasingly constrained.
The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market's recovery.
Had Alan Greenspan meted pain as his predecessor did, administered "tough love" instead of appeasement, things may have turned out differently.