The WSJ had an article yesterday called No Place to Hide which was about the carnage in mutual funds in recent weeks and the collateral psychological damage inflicted as a result.The article also talks about lessons not learned from the tech bubble, how poorly many of the largest funds have done and whole section on 401k disappointments.
Here's one money quote;
The situation is worse, he says, for people who were already withdrawing 5% a year from a retirement account that has now sustained 30% to 40% losses because of overweighted equity allocations. These investors are "highly likely" to run out of assets before the market recovers, according to Mr. Bernstein. "For them, I'm afraid the game is lost," he says. Mr. Bernstein is a financial adviser from Oregon.
I'm not saying that there are not people who aren't permanently impacted by the double bear markets of this decade but I have trouble believing that so many people really are permanently impacted. What I think is more likely is that many people think they are permanently impacted.A friend made a comment in passing about working a little longer because of all this. From some things I read, some comments on the blog and other anecdotal items I think more people are thinking in these terms. I am all for things like working longer (not just for financial reasons), saving more and generally being more financially conservative but this is a bear market. Bear markets end eventually, before most people realize, and then they go up. I touched on this in more detail a few days ago but the odds are that ten years from now the market will be a lot higher. It usually is after ten years and all the more likely after ten years like we've just had.
Whenever the next cycle starts it is a good bet that there will be one or two big up years. This will bail out a lot of people even if just emotionally.
When I started writing so much about a bear market coming back in 2007 I'm not sure if anyone thought of me as a perma-bear or not. Now that we have dropped forty whatever percent and have become more constructive I'm not sure if anyone would think perma-bull.
Of course neither perma bear nor bull makes sense. The things addressed on this site are obviously just the basic idea that stocks don't go up forever nor do they go down forever. They go up most of the time but sometimes they go down like now. I believe very few people will be truly ruined by this bear market.
One unrelated item. Yesterday a college buddy friended me on Facebook and I was surprised by a couple of things in his profile (nothing bad) and Joellyn asked me how surprised did I think people from college or high school would be when looking at my profile. It was a brilliant question and we had a deep and introspective conversation about it. So how different have things turned out in your life compared to what you thought when you were 20?
12 comments:
In a sense, I've become the boring person that I though my Dad was when I was young. You know the Dad that was the biggest moron in the world. Funny how much he learned. Even funnier is that my kids say the same exact thing about me. Ha!
OTOH, of the people I went to high school with, I am the only one who could retire today and not suffer a change in lifestyle.
I am much more long term bearish than you. People are use to taking 5% per year from there assets even though that level is unsustainable. It will be very difficult for them to change there habits.
Personally I think people should try to concentrate on dividend yielding stocks and taking less from their assets each year.
ITA with your idea of working longer and you are very right about there being more than just economic benefits to this. Of course most of your advice is usually good.
The one point we disagree on is that just because the last 10 years have been bad for stocks does not mean the next five years will be good. Five bad years while taking to much from your 401k during this period could be disastrous for many. Which I guess brings us back to working longer even if it is only part time.
good stuff 620, a less deep one for me is that i drive pick up truck.
622, i talked about a 20 year round trip to nowhere in the post linked to today. in that case i would expect some good up years and some bad down years. some sort of timing plan might be very important in that light.
What's the picture?
Oh, and Morgan Stanley issued a "full house buy signal" on Europe.
???
the picture is from above downtown Juneau.
I haven't made my way to the FT yet but if the morgan call is from Teun Draisma (spelling?), well he has been very right quite often.
Roger,
I'm confused... where do you think the source is of "odds are the market will be much higher ten years from now"?
I'm sure you understand "anchoring", the observed heuristic that suggests financial analysts (like all of us) are susceptible to holding fast to prior beliefs/assumptions, even in the face of new evidence.
I'd love to hear why you think that we're NOT following Japan's trailblazed "lost decade". (Recapitalizing financial institutions is only a partial distinction: consider the magnitude of what is necessary vs. what has been provided so far. Something is greater than nothing, but if you need 10x or 50x "something", how much better off is that something relative to nothing?)
Also, gold is up (today), dollar is weakening across the board, odds are another interest rate cut (putting us below 1%, with a projection toward 0.5%) is inevitable. Deflation is upon us, and it seems a weaker dollar (and possibly inflation) is coming down the pike.
So, while I can believe that the market is effective at discounting future damage, I am not convinced at all that the upside projections are not being seen through rosy "hope-colored" glasses.
Help me to understand why this won't be an L shaped recession, and what has you convinced that the engine is there for "much higher" by end of decade. Would be great if the reasoning did not refer to "all bear markets end, this is a bear market, therefore this will end." (Ending the bear does not logically mean "much higher"...)
In fairness, my doubts are focused on the cultural change that is already being observed. Where our economy has been in many ways supported by consumer activity, fueled by easy money and houses that turned into ATMs, we're now facing parabolic increases in health care costs (as a function of the boomers soon reaching the threshold of "majority of health care expenditure occurs in the last year to six months of one's life"), a sobering conservatism in the following generation (as they recognize the need for extra savings to supplement/replace the ineffective social security system), and increased pressure on the FOLLOWING generation (20-30 yo) who face increasing education costs for their children, higher taxes, and the (likely) need to contribute to the financial well-being of their parents (see above).
Add to that the continuing economic pressures of energy, national security and the burdens of coming waves of regulation, I'm skeptical of "much higher", to say the least.
I think value is out there, and for the active engaged investor, returns might be found, but much higher now occupies the 2 sigma (or more) tail in my analysis.
All the best,
R in NY
I was a good boy growing up. I played by the rules and met the expectations of all the role models and authority figures in my life. It all worked out just like they promised, and I don't think anyone would be surprised by my Facebook profile today. The only downside is that I met all of my goals pretty early and have to admit that I'm somewhat rudderless now.
I'm frequently amazed when I run across old acquaitances who've become successful well beyond what they seemed capable of when they were growing up, but we're all pretty self-absorbed at that point, I guess.
Japan had problems with cross ownership, slow moving central bank, and different ideas about writedowns.
Japan is down a little more than 75% from where it was 19, maybe 18, years ago.
I simply do not believe that is where we are. However that is just opinion. Who cares about opinion? The most important things I write about (well, who can say whether any of it is important?) are about heeding the message from the market like 200 DMA or yield curve.
I don't think US is permamently broken but I expect to get better results from foreign (I've said this many times) as the US offers below normal results. Keep in mind, a doubling of the US market in ten years would be a below normal result (7.2% annualized).
If ten years from now we are at the same level then it makes sense to believe the road to that point would be a series of ups and downs of varying magnitudes that might need to be traded in a manner similar to how I have disclosed trading this bear market over the last year.
My opinion is what is what it is, may or may not be convincing to anyone but is low on priority list.
Whatever the next ten years brings I ahve to think that gold up today, dollar down leading to some conclusion about fed funds will matter a lick--again WRT the next ten years.
http://howardlindzon.com/?p=3926
It's a different market now.
As for then vs. now....my friends
are amazed I'm still alive...and so am I:-)
Roger, can you suggest a conservative asset allocation model portfolio for someone in retirement and age 75? How many different asset classes should one have?
sorry but that would be a compliance issue. genrically i would say have all of the asset classes,
Bernstein is referring to those rule based retirement withdrawal plans (Trinity study etc) where you take out X%, with inflation, forever. If you started with 3% then you will do fine. If 4% then probably fine as well. When you use 5% then periods like 1929 and 1973/4 caught you (historically) and you never recovered. That was always the risk of taking 5% 'forever'
However, at this stage you just have to forget about the original 5% and spend as little as possible and hope that it comes back. Noone in their right mind would still be taking the original 5% as of now.. unless they had no slack at all. And then their retirement, unless forced, was a mistake in the first place unfortunately.
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