A reader left a comment noting that SPX going down to 600 would be devastating to baby boomers. Maybe it would be devastating, collectively, to baby boomers but I would look at this differently. If 600 ends up being the number, then what? After 600 what comes next? If the bottom comes at some other number, then what? Whatever the bottom what then happens?
After the bottom it then begins to work back. The time table may or may not be to our liking but the bottom is the bottom and after the bottom prices go up. Regardless of when a bottom comes or how long it takes to make back a meaningful portion of what you are down, the above description is how it will work. Again, the variables are when and how long.
Of course when and how long are beyond anyone's control so instead of worrying about what we cannot control, we should worry about what we can control (at least partially) like not panicking, staying disciplined and recognizing when others are freaking out.
In the last couple of months, not surprisingly, I have had more contact with clients than normal. There is a balancing act here with realizing how numbers and markets work and being appropriately sensitive to client concern.
As for the numbers and markets and tying in with the reader comment about baby boomers; it's a good bet that a healthy baby boomer will live to see a new high in the market, by a wide margin probably. The market had a decade long round trip to nowhere that ended in 1946. In October 1946 the Dow was at 186, ten years later it was at 479. After a famous decade long round trip ending in 1982 the Dow went from 991 in October of that year to 3226 in October 1992.
Think this time is worse? Ok, say that it is and it only doubles over the next ten years (much worse result than the other times), a healthy baby boomer will very likely live to see new highs. Think this will turn into 20 years of a round trip to nowhere? Ok fine but that final result would not come in a straight line. There would be plenty of 20% ups to be in on and 20% downs to avoid or short.
If things turn out to be truly different ok, figure out how to adapt and then stick to it.
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10 comments:
"Growing numbers of preretirees dip into 401(k)s, skip bills and medications"
And, the government along with the candidates wants to make it easier and easier to get at that 401K money earlier and some even have proposed a debit card!
There are alot of 70+ers that have
depended on CD interest income...
not stock holders...that will be
moving in with their baby boomer children. (ex:My 80 year old mom
who inherited $ from 5 relatives
plus her late husband is now into the principal.)
I am in the position of having to reconstruct my portfolio in the next week because I will be on extended travel for 6 months and unable/unwilling to check on it regularly. Currently I'm about 5% equities and would like to get back to 50% soon (obviously not in a week).
I am thinking that it is crazy not to be buying stocks at these levels. But it looks like both S&P sub-700 and a monster rally may be ahead of us, and that said rally (s) may occur before S&P sub-700, which might not even happen until late 2009. So it seems that unless I am willing to trade, I may be wasting my time being in the stock market for the next year. I am not a trader and feel disadvantaged in this market. How do you buy on momentum with 5% intraday swings? Would a good approach be trying to average in on daily lows (which seem to be now always in the last few minutes of trading)?
I have spent time in the past few weeks building a list of long term holdings I want to buy (all ETFs). Am I wasting my time, and should I instead just focus on broad market index ETFs as a way to play rallies until the market becomes investable again? Would it be appropriate in this blog to ask what kind of strategies people are planning to use if the market stays uninvestable as it is now?
Jim
Dear Roger and all commentors,
I too have been hearing about this
monster rally and the need(I guess
that is my term)to start buying stocks. However, this is my op
inion only that after a big run
up there is a retest or at least
something close, to the old low.
I refer to the 2002-03 low as there
were three tests before prices
went above the 200 day m/a and
marched merrily along. I am holding
off any further purchases, however
if this sucker tanks to 6-7000 I
will average down(no I think this
is a good thing to do) on all
positions and initiate spy position.
Speaking from experience, I was
100% long in 1974, 1987, and 2002
and I fully recouped. However,
in this psychotic program I decided
"not to be broke" at the bottom
and therefore can take advantage of
these prices.
I think some of these prices are
not only forced selling blah blah
but reflect depression prints.
This is my opinion only, invest as
you see fit, its your dough.
Ricky
Noticed Roger had no comments yesterday to a number of tough comments. Probobly no easy answers.
or, um, busy?
It's true this is not the 1929 depression, it's the 2008 depression. Different but could there be similar consequences? We'll we could drop 95% like 1929. I suspect the response would be, not likely. Who says?
Did you see this from the peoples' friends in congress?
"Powerful House Democrats are eyeing proposals to overhaul the nation's $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive."
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081012/REG/310139971
Argentina just nationalized retirement accounts. I guess our politicians are trying to make this country more like Argentina. I woould not surprise me that the greedy hands in Washington are eyeing the money of the "rich" folks who have saved instead of following Washington's lead and spend, spend, spend, all borrowed money. (sigh)
RE the speculation that Democrats may attempt to tax 401K contributions. One of the infrequently mentioned consequences of the current tax deferred nature of 401K's is that, potentially, capital gains end up being taxed the ordinary income rate when withdrawn from the 401K (this assumes one has capital gains!). Presumably, eliminating the tax deferment would eliminate the possible tax on cap gains at ordinary income rates. The Democrats will probably not like that, and it will likely prevent them from implementing the reform.
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