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Sunday, Nov 8, 2009
I'm not sure whether anybody mentioned this, but...
With a long time before retirement, investing mostly in overly conservative instruments like CDs is basically stupid, even with the potential of major market collapses.
For instance, imagine that this woman's husband put $1000 per year in CDs that earn 3% a year. And the wife does the same thing but in stocks that average 9% a year.
At the end of 10 years, he has a little over $13,000 and she has almost $19,000. Let's say the market then collapses and her savings fall nearly in half to $10,000.
So she's really not far behind her husband. She's basically lost all her earnings from the last 10 years but has kept her principal. The market slowly recovers and starts earning 9% again and they continue to do what they've done until retirement, another 10 years.
At retirement, he has less than $30,000 and she has over $40,000.
So who was smarter?
Now if they were less than 10 years from retirement, the husbands strategy might make sense. But at their age any financial consultant would tell her that her husband is an idiot.
Hi! My name's 1guru1. And I'm an investor. Are you? See, a loss not realized is not necessarily a loss. If you sell now, of course you're likely to get whacked. Many market swoons, even one as severe as this one, do not deter some long-term investors. Emphasis on the "long." If you need the money this year or next, stocks are NOT the place to park cash. That is the money you should reasonably anticipate in 2019, or 2020, with a nice capital gain. Really. As for the CD's hubby bought, the income returns on those act as a nice cushion; if they're FDIC covered you will at least maintain some income after taxes, while some of the stocks you own (hopefully) continue to pay you dividends. You did buy dividend-paying stocks; didn't you? Investing takes patience, discipline, and flexibility. Anything else is gambling.
Okay, I don't want to sound like your mother here but you've just got to stop living in the future and relax. Life throws stuff at you and you have to deal with it but in the moment, please! What you're worried about now isn't even a problem yet. 25 years?!!! You're worried about something that MAY happen in 25 years? What will probably happen is the stocks will rise. Yikes. There are people who aren't working. Whose houses are being foreclosed on. Whose unemployment will run out in a couple of months. Who have children in college. Whose credit is so shot when they have to leave their houses they won't be able to rent a place. Like me. What gets me through these crazy days is knowing that life has it's ups and downs. That I can't control and plan for everything. And that a nice meal, a warm, caring body next to me at night and hope can keep a person going when everything else is crashing in on them.
You have done nothing wrong. You bought stocks--in 401Ks, mutual funds, whatever. Stocks go up and they go down too. Economy is good, stocks rise. When the economy is down, stocks go down. When the economy improves they will go up again--so long as the companies do not go out of business. Stocks are an important way to "inflation-proof" your portfolio--ie, if there is inflation, the value of stocks will track and give you better return than CDs or Bonds.
You don't need the money now, right? You're some 20 years away from retirement. If you look at historical cycles, you'll see that we seem to be on a 30 year boom/bust cycle. Hang tight.
If you were retired now, I'd say you should worry. But you're not. You're going to be OK.
For your own peace of mind, educate yourself about finance. Read a "Finance for Dummies" book. I took a finance class in my local community college--very low level--that at least taught me the lingo. I subscribed to financial publications for a few years, just to learn the culture and the language. (Barrons is good. Forbes used to be, but then they got all political.)
And DIVERSIFY. If you're 100% in stocks, put some in bonds. Put some in CDs. A little cash maybe. Spread it around some. When stocks are down, other things are not. (My portfolio has been buffered the last few months by a nice counterweight in high quality corporate and US bonds. 2 years ago certain people were scoffing at me for not getting high returns--but today if I had to sell, I have bonds that are worth something.)
If you get a financial advisor--with or without hubby--tell him/her you want to "depression-proof" your portfolio. Maybe you'll want to look at funds that invest in blue chip stocks. Maybe you'll want to add bonds. Or precious metals. The idea is to diversify so when your stocks are down, something will be up.
Someone famous once said: "It's not how much you have that counts. It's how much you have LEFT". In other words, it is irrelevant how high your 401k or investments went in a big speculative bubble; all that will matter is what you have left at the end when you need it (retirement, unemployment, etc.).
Stocks might come back or maybe they won't. The world is changed. The old rules may (or may not) apply. Because "stocks came back" in the 80s and 90s, and because they came back after the tech crash of the early 2000s is NOT proof they will come back again. Any investment is a gamble -- even your husband's CDs. If there are truly massive bank failures, we may find that our FDIC insurance is worthless. (However, contrary to a former poster, your money is currently insured to $250,000 at each institution, not $10,000.)
I'd imagine that kind of wholesale economic collapse would render any idea of "how much retirement savings you have" to be pretty silly -- you'd be better off investing in a shotgun, pencillin and MREs (meals ready to eat).
Reading between the lines, what I sense is that the LW isn't even so upset about her losses as she is about the PERCEIVED lessening of her value and importance, her socio-economic standing vs. that of her husband. In other words (contrary to the fears of some posters), I do not believe she is remotely afraid of being "beaten", but afraid her husband will go "nyah, nyah, nyah" at her.
The other sad underlying suspicion is that if the shoe was on the other foot -- if her 401k was high as a kite, and his CDs were paying 2% interest -- she'd be "nyah nyah nyahing" HIM. What I sense in their marriage that is very disheartening is that they are not true partners but COMPETITORS...and that's a very sandy, unstable foundation for a marriage.
May I suggest, LW, that instead of COMPETING with your husband, that you consider how wonderful it is that his conservative strategy has balanced out your more risk-taking one, and that his CDs mean you still have a pretty decent nest egg? Isn't that WONDERFUL? If you were both risk-takers, you might be wiped out now. Why can't you see that HIS MONEY is YOUR MONEY, just as YOUR LOSSES are HIS LOSSES, because you are LIFE PARTNERS and in this TOGETHER????
*****
Nonetheless, I find the posts here awfully amusing -- the defensiveness, the reliance on tired strategies (invest for the long haul!) and parroted beliefs (the market MUST come back, it just MUST, it always DOES). The funniest of all are the rich pampered intellectuals who like to brood about the coming apocalyse -- as if it will go on all around them, proving out their belief systems, but not affect their video games, internet access and navel-gazing. As if it will be like living a real world version of a dystopian novel, in which THEY are the hero/heroine.
The future isn't knowable, predictable or "gameable". The future has laughed at people smarter and richer than you, and turned their dreams and strategies upside down. I used to have a bumper sticker that said "Make God Laugh Today... Tell Him Your Plans."
You can save and earn all the money in the world, and be sitting pretty, and then get cancer and die young. I actually know people to whom this happened. In that case, the best returns on your investments will mean exactly NOTHING.
Look at and learn from our friend, Brightstar. He earns $140,000 a year (up from $108K last year, an astonishing salary increase, so among other things, he works for the greatest company in the world), which is about 3.5 times the annual income of the average American. He has a $750K home, plus other property. Beautiful women throw themselves at him. Yet he's the bitterest, angriest, most unhappy human being it has ever been my sorry privilege to hear from -- the money isn't enough (could never BE enough) to buy all his inflated dreams and his huge ego, the women are not "hawt enough" so he ends up alone (dreaming of fertility procedures that will let men get pregnant, LOL).
Brighty, has it ever occured to your Great Brain that you could live easily on $40K (like the rest of us) and save $100K (or pay your poor parents back, ASAP) and in about 2 years, you'd be in a very sweet position? You could turn your hyper-inflated McMansion with the "six ft. square marble kitchen island" back to the bank, since you really could never afford it in the first place. You could try treating women like human beings, and maybe you'd even get married and have kids....
But noooooo....no, it's more satisfying and fun to squee endlessly on the internet about how "bad you have it".
As long as MBAs who earn six figure salaries are whinging, I guess we don't really have that bad an economy. So I will sleep soundly tonight!
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