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Do Stock Prices Keep You Up At Night?

25 May 2010 No Comment

It’s sad how many Americans are dependent upon a high stock market, praying each night that the markets don’t tank because the ramifications would be enormous for you.  Today’s market is crazy.  It’s volatile, unpredictable, and possibly even manipulated.  The winners over the last decade have been the financial planners and Wall St while Americans stash away every dime they have into stocks hoping for outsized gains, while the “experts” rake in fees and win no matter what the market does.

While investing in stocks is a great idea, I completely balk at the idea that is so common that you need to be in stocks in order to have a financial future or in order to retire.  The stock market has been one of the motivating vehicles that has caused a low savings rate in America.  By promising outsized, long term gains, Americans figure they only need to save something 5% of their money each year rather than the 10-25% that they probably actually need to save.

401(k) plans institutionalized this mentality.  Participate in 401(k) plan with your 4-6% contributions and forget about your retirement.  It’s taken care of!  Laughable and sad; because millions of baby boomers are going to find out their standard of living is going to decrease significantly during retirement.  How many retirees will be working as part-time Wal-Mart greeters in between golf outings?  If inflation starts to push consumer prices up, look out.

Meanwhile, for most 401(k) participants, they put some money toward retirement, then fund their lifestyle with consumer debt.  How the heck does that make sense?  It’s time to get your lifestyle in check, get out of debt, participate in your 401(k) but also save more money elsewhere.

The simple truth is that we want fruits of our labor without the labor part.  We want retirement without saving.  We want to be thin so we eat like crap and take diet pills.   What happens when the party is over?  Many will be shocked.

If you’re young, you have an opportunity to chart your own path.  Be more frugal, save significant amounts of money, invest your capital into assets.  Be patient with investing, wait for multi-year lows then aggressively allocate capital (with today’s market it seems we’re poised for a crash every few years – why not wait for the crash, the dump your cash in?).  You won’t be able to have a retirement that most of us envision by saving 5% of your income every year.  The numbers simply don’t add up.  If you do these things, you won’t be praying for stocks to stay high.  Instead, you’ll maximize the opportunities when stocks crash, then ignore the day-to-day fluctuations since your lifestyle, income and investments all line up accordingly.

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