And then there’s…
…this.
From the video at the link:
“They’re scared that maybe there’s no place to make money. If the stock market’s not going to make you money, where do you make it now?”
When I was younger and looking towards this time of life, I figured on a certain return on my money that just isn’t possible right now, nor has it been since 2008. I’ve never had the stomach for the ups and downs of the market, and yet I’ve been in it somewhat because of the dilemma expressed in that last quote—how does a fairly modest investor who can’t accept high risk make much money these days?
When I was married, I let my husband handle it all, and I was very very happy to do so. When stocks rose it was nice, when they fell it was awful (I remember 1987). But I always retained my equanimity, in part because we were young, and then at least youngish, and could make more money and wait for the market to rise again.
Now, not so much. I also am well aware that many people have predicted much, much bigger and far more pervasive collapses in the not-too-distant future. It’s the nature of bubbles to burst.
Hope it’s not another 2008. In 2008 the stocks in my 401k lost about half their value just before I retired. I wasn’t planning on retiring but I was laid off in 2009 and unable to find another job. After 3 years I gave up looking and went on Social Security retirement.
The Fed’s Zero Interest Policy via QE to infinity or whatever, is criminal. It has screwed savers and forced everyone else to chase yields in riskier assets. Pension funds can’t meet projected shortfalls. And then there are knock on effects, such as distorting the currency markets. We’re just blowing bigger bubbles.
Our currency is famously backed by the full faith and credit of the US Government. Rule of law? Thanks Obama.
How do you make money? You produce an actual product; that’s called manufacturing. Not playing the casino game of the stock market.
It’s worse than that; neo’s post focuses only on the stock market.
The bond market has nowhere to go but down, given that bond prices are inversely related to interest rates, and interest rates can hardly go further down.
It used to be — not that I’d recommend this as a financial course of action, but only for argument’s sake — that a retiree could (in theory) put his/her money in a federally insured savings account and live off the 5+1/4 % interest. [I know, this disregards cost-of-living considerations and a few other considerations, but bear with me as I amble towards my point.]
No more.
One would have to be a gazillionaire to live off the microscopic interest accruing in federally insured (i.e., “safe”) parking places. But said gazillionaires have better ways to put their assets to work. Ordinary folks like me and neo are caught between the rock and a hard place.
My point:
People such as neo is describing are practically forced to take on risks they’d much rather not take on. (I’m one of those people, so I speak from experience.) But what the %$#@ are we to do?? We have no stomach for the roller coaster ride of stocks, bonds are extremely foolish unless held to maturity at today’s microscopic rates of return, real estate and so on are possibly better, but we don’t like the market risk.
Conclusion: [ sigh ]
Were I a conspiracy theorist, I’d be convinced it’s deliberate action on the part of the statists to force retiree-type people into risky investments, as a punishment for not embracing a nanny state in which, in return for one’s signing over one’s assets, the government guarantees lifetime income sufficient to meet all needs. But I don’t buy that conspiracy.
Don’t I?
M J R,
My theory is that we have been in a slow motion currency crisis for at least a decade and my conspiracy theory is that the Davos crowd will use the fallout from the debt-induced crash to introduce a new world currency.
physicsguy:
I’m not talking BIG money. I’m talking about the sort of interest rates for conservative investments that used to be standard and not all that high. I always figured around 4-5%. See this chart.
I was never planning on playing the “casino game of the stock market.” Bonds held to maturity, for example.
When Obama was re-elected in 2012, I decided, since I was 79 and nearing the end of the trail, to limit my downside in the market. I have four layers of investments.
1. A bond ladder of investment grade bonds set up to hold short term bonds to maturity. This provides above average interest with less risk than the market.
2. Short term investment grade preferred stocks bought at below par and held to maturity. (These are hard to find and require patience to search out and acquire at the right price.)
3. 1 – 3 year CDs maturing at times when I have to take minimum required withdrawals out of my IRA.
4. Half of my investment capital is in a Fixed Indexed Deferred Annuity. Each year I can choose either a guaranteed rate of return of 1-3% depending on market conditions and/or the rate of increase of the S&P for the year, which is capped at 5-7% depending on market conditions. It also guarantees that the principal will never decrease no matter what the market does for the year. It’s not a perfect investment and it does have risk – the risk of the insurance company going out of business or the risk that the S&P will rise by 20% and I will only get 5-7% of that rise. I chose a highly rated company for that reason. This is money that I will probably never use, so my beneficiaries will get it when I pass on.
It has taken longer than I expected for the market to go south. For three years my returns have not equaled the market’s returns, but I’m feeling pretty good about my decisions today. The only thing I am worried about now is the stability of the banking and insurance industries.
The whole world (With a few exceptions – Venezuela, Zimbabwe, Argentina, and ?) seems to be in deflation. Cash or cash equivalents, as long as the money is sound, is the place to be for now. At the time, as bad as things are here, we are an island of financial stability in the world. Will it last? With Obama and company at the helm – who knows.
The stock market was created for average people to fund rich corporate sharks so that the sharks could gamble with more money on investments.
It’s not designed to make you rich, in fact it rewards lucky people like Google or Facebook or those that bought into Apple or Microsoft early on.
As others said, it’s more like winning the lottery or gambling to get your fortune. You don’t get to decide how the money is used, so what are the “investors” complaining? Technically, they aren’t even investors. They just put up the money so that the actual investors don’t go broke, but the ones with controlling interest are usually special elites at the top.
Neo,
I mentioned this point a few days ago in one of the Trump posts. Currently the market is set up for the stock market, and only the market. Investors have far less diversity in their portfolios than in the past. Now when the market adjusts it effects everyone. The buffer of other investments is no longer there.
The Fed has done this for a few reasons and this is why I feel things are so dire looking.
1) By forcing people into the market you prop up many of the companies that contribute to political campaigns. Pumping all this money in keeps stock prices high and offer the illusion of prosperity. This is a reason why the market has continued to increase so fast. While unemployment,inflation and other indicators keep telling us this should not be possible.
2) By keeping the interest rate low we have allowed ourselves to run up the government debt. Very simply as the primary reserve currency we essentially set the interest rates for the money we borrow. By keeping the absurdly low rates. We can continue to borrow and debt service is kept reasonable. At simply average interest rates of 3-5 percent we are looking at debt service 7-10 times what we are paying now.
Quite simply we have cannibalized the future for short term political and financial gain.
Boy, Neo, that really hits home. as do all the responses. When I was planning for retirement I did all the prudent things. I estimated 5% inflation, 7% return on the D&P 500 (historical average), and 4% on CDs or Money Markets accounts. I assumed that I could live on half of what I was earning when I retired. Boy, was I wrong about everything.
I totally agree with gpc31 that the Fed’s ZIRP is criminal. It’s clearly a scheme to skim money from retired folks and other savers and funnel it to the bankers, security “industry” (which produces nothing), and politicians.
Anyone who hasn’t 10% of their capital investment funds in hard currency, i.e. small denomination gold and silver coins… has their head firmly planted where the sun doesn’t shine.
The inimitable Richared Fernandez elucidates “How Systems Get Tired”
Utter dependence upon the reliability of the federal fiat money system is essentially betting that there will NOT be another “great depression”. That there will be another catastrophic depression, much greater than the one in the 30’s is mathematically unavoidable and inescapable. It will occur when the politicians run out of road down which to kick the fiscal ‘can’. That road ends in a cliff’s edge. Hundreds of millions of American’s destiny is to go over that cliff.
I’ve very cleverly avoided all of this drama by remaining poor.
My cash and precious metals did not go down today. My stocks got hammered.
The real crisis will happen when the insurance companies and pension plans collapse. The low rate environment is utterly deadly to such entities, and those entities are an extremely important part of the economic system. That collapse is almost a sure thing now, and the only question is when. I don’t think they will make it another decade.
“No place to make money. . .” What? Politics is VERY lucrative. Ask all but one or two Senators, especially Harry Reid, the Clintons, the Obamas, — the list goes on and on. And you don’t even have to pay tax — that’s for the little guy, as Glenn Reynolds says.
If a couple are in their 60’s, probably one of them will live to 90. Therefore you can, and should, take a long term perspective. Today’s up and down, or this year’s up and down, don’t mean a thing. Those people who got scared in 1987 and bailed on the market when it was 1200 missed the rise to, even after the last couple of weeks of decline, a market now at 16000. The time from 1987 to today is about as long as for someone 65 to age to 90.
When we had “normal” interest rates, people could save their own money for their own retirement, and would not have to depend upon the government.
Can’t have that, can we?
jvermeer,
Fair enough, but have you asked any Japanese how they feel about their long term investments from 1987 to present?
Secondly, you are assuming “normal” free markets. These markets are anything but.
GB @ 7:15 PM – – for a variety of reasons many people do not have the option of putting any per cent into gold and silver. Even good people who would like to.
The most sensible thing beneficial to everyone is to let the free market create money. This means (most likely) everyone has gold and silver in his pocket.
Taking away pass book interest from we simple folk is criminal in so many ways. Nixon got us off gold and W. Bush deprived the little people from a simple investment with big implications.
I realize it is all very much more complicated than that, but the essence is there.
It had been many years since I read The Law by Bastiat, but I recommended it to a young man off to college and then got one of those self-doubt things where a person wonders if the actual fact supports the memory.
What a delight in reading it again, totally free (to me) online.
Wisdom is flying away.
Robbery by definition means force.
So many humans, responding to their humanity (or wanting to), have been and are being robbed of their God-given right to make money. I mean selling apples or mowing lawns.
Matt Se @ 7:39 PM – –
“I’ve very cleverly avoided all of this drama by remaining poor.”
OMG, ty for making me laugh.
Fertile farm land, silver and gold and lead, food and the knowledge to grow and preserve more food, a source of clean water, and most importantly family and reliable friends. But, we do have rental property, stocks, bonds, and cash in a stash. We feel ready for the new world disorder.
Agree with all of the above.
ZRIP is criminal. It and QE was done, in large part, to repair TBTF banks’ balance sheets.
When I see those rich arrogant mutual and hedge fund managers on CNBC I want to puke. They always get paid based on AUM.
We are f&*^ed.
My investments are well diversified, and by that I mean they are scattered in many countries. The main financial hit I’ve taken over the last year is that the US dollar has strengthened enough to wipe out my overseas gains completely. That hurts.
When people who are invested primarily in the US complain about the Fed trashing the dollar I smile wistfully. A weak dollar would put more wind into my investment sails. But it will not be. The fed is actually doing a credible job managing the US currency and the dollar will probably remain strong for a long time.
As for my investments, I’m not overly concerned since market ups and downs are inevitable. Trying to evaluate your net worth with so much of my money is in the stock market is like trying to determine the actual sea level. It is never still but surges and recedes like the waves and the tides. Markets like yesterday bring on a bout of sea sickness, but the tide always turns and the storms always pass.
I do NOT think we are in an equity bubble because interest rates are at record lows.
China, however, is something different. Open government manipulation and control of equity markets and untrustworthy numbers.
I think many of us saw this downturn/crash coming from a mile away. It was just a matter of ‘when’ rather than ‘if.’
This summer, right before my daughter went to college, I shifted half of her college savings into bonds. I knew in the next 4 years, the stock market was going to be very volatile. Very glad I did that.
My husband, who is in his early 50s, also shifted a big portion of his retirement into bonds. Thank goodness.
I, on the other hand, am looking forward to a further crash, and then I can invest more of my $$ in my retirement account and get more bang for my buck. I have about 20 years before I retire. Plenty of time to ride out a bad stock market shift.
Those who were nearing retirement, should’ve moved a majority of their savings into bonds. If you haven’t yet…I would do that immediately.
Obama was hoping that the trick of holding the fed. interest rate at zero would make it appear as if we were in a big economic recovery. I am no economic expert, but I knew after reading several articles and opinion columns that the gains in the stock market were not real gains. I knew that once Obama left office or right before he left office, and monetary policy returned to ‘normal’ that the stock market would be very badly affected.
China’s problems only escalated that timeline. It is going to get much worse before it gets better.
Buy low. And if you have a lot of time before you retire, you will make a lot of money over the years.
FYI, in 2007 when the stock market was in the tank. I picked up some stock for 50 cents a share. That stock is now around $8 per share. It had actually gone as high as $11 per share. You can make a killing if you watch a few stocks, know what a ‘bargain’ is and buy at that point.
K-E:
Bonds give nothing like the interest they traditionally used to, however. I have about half stocks and half bonds, by the way. But as bonds come due it’s harder and harder to find any new ones to purchase that are worthwhile unless they are exceedingly long-term, and even those have interest that is quite low in terms of what’s been possible for most of my life before 2008. To lock money up long-term at interest that low doesn’t seem like a great idea, either.
Neo
Bond market equivalents like Clorox are where the action is.
K-E,
If there’s a major crash, retirement accounts are the LAST place I would put cash.
See both Greece and Cyprus: banks will be “bailed in” to make banks solvent, and so will government-backed accounts.
Your money will be stolen, to put it bluntly. Stolen by the government.
Those of invest with an eye to protecting themselves against things which can but probably won’t happen will be unprepared to take advantage of things which can and probably will happen.