Wikinvest Wire

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.

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."
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.

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.
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.
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".

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.
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.
Where do you go from here?

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.

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Anonymous said...

The reason advisers keep touting stocks is an inflation hedge. Get rid of inflation, and citizens can save without taking all that risk.

Inflation is the enemy.

Anonymous said...

When any asset class gets overloved, like bonds are now, I get concerned.

Anonymous said...

Eight Years of BLATANT FRAUD takes a toll. Who would have thought? This is Capitalism Destroying itself, without REGULATION CROOKS Run Wild.

But not just the Stock Market,
there's BLATANT FRAUD in the Healthcare industry.
All reported cases of "RESCISSION" are clearly insurance Cancellations to avoid expensive payouts. These guys should be doing JAIL TIME. Have the "regulators" been bribed?

Anonymous said...

We have laws against fraud on the books. We don't need more "regulation," we need more prosecution.

But the crooks are the #1 donors to the elected officials. When GS gives the most to Obama, it's hard for Obama to want to bring them to justice, so he likely tells the Justice Dept to stand down.

Dan said...

Fractional Reserve Banking/Lending is gov't sanctioned fraud. It's hard for the gov't to prosecute perpetrators of this fraud and not that fraud.

What's with all the "Anonymous" comments? At least just enter a name. Posting as anonymous is not really anonymous anyway as the server is likely grabbing your IP and your MAC address.

Anonymous said...

Of course, government workers do not have to save ANY thing for retirement. Pensions of $100,000. are common. see

Anonymous said...

The thing is the Baby Boomers almost certainly have it WAY better than any generations after them will. Remember they are the ones who buy and sell houses with previous home equity and keep generation Y and millennials and some Xers unable to afford houses at all! Remember they didn't graduate with 100k of college debt to get their college educations and they probably got a better job for their degree than working retail.

I do agree INFLATION is the enemy. So what do you put your money in if not stocks? You just know bonds are going to crash when interest rates tick up. And what about plain old cash? Well due to high inflation for decades this is also a losing bet. Inflation is the enemy of anyone of ANY generation trying to save for the future.

John S said...

"The thing is the Baby Boomers almost certainly have it WAY better than any generations after them will..."

True, starving to death in a McMansion is somewhat better than dying in hand-to-hand combat over a can of beans.

Anonymous said...

If only more people had sold their stocks ten years ago and bought gold, there would be far more happy retirement stories today.

Maybe those Y2K survivalists had the right idea after all. Apart from the huge stash of freeze-dried food rotting in the garage.

Pensions of $100,000 are common

Your numbers are garbage. Cherry-picking what a handful of police/fire/management government employees receive after three decades is not 'common'.

Anonymous said...

Nope! Freeze-dried food can easily last for 20-25 years if stored properly. Any that was bought for Y2K is still just fine...

Daniel Korn said...

"If only more people had sold their stocks ten years ago and bought gold, there would be far more happy retirement stories today."

If everyone had tried to sell their stocks ten years ago, the 2000 crash would simply have been bigger than it was with no recovery. Everyone can't sell at once. The problem is that stocks have become disconnected from the stream of payments provided by their dividends. This has reduced the intrinsic value of stocks even as their price has increased. If stocks were returning 8% annually of today's price, no one would care if the stock market crashed (well, they would care less).


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