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« Is Now the Time to Buy Your Retirement Home? | Main | How I'd Handle Awkward Money Situations »

October 13, 2011


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I always like the historical 8-10% return. Seriously, who has gotten this mythical percentage over the last 10 years? "Your money will double every 7 years," it hasn't in the last 15 years, so how is anyone getting this. If you are truly diversified, this has not happened to you.

I think the 10% average is far too optimistic (it was likely calculated before this recession) but the rest of the article is accurate. People do tend to spend far too much money on non-essentials and make excuses for why they aren't saving or investing.

Agreee with alot of this.

I suspect the long term average of the market is still 10%- but that is an average and it does very...the last decade has been pretty terrible.

However, that is just another excuse - "I can't save and invest unless " rates of return are better.

We don't know what the market will do over the next decades, if the returns are low that means we need to save more to reach our goals.

-Rick Francis

America has sold itself out...many of our historically American companies have been sold to foreign investors and the few that remain here have outsourced their labor, their r&d, and their goods manufacturing. No jobs left for us.

And those so-called 'American' companies keep their profits overseas to avoid supporting our country with tax revenue.

The economy is in such shambles that there aren't going to be any earners around to invest in the stock market (except company execs).

As if there is such a thing as a return on your investment.

@Holly: Why not invest in China then?

While I'm sure much of the advice was helpful, I had trouble reading past the "normal market returns of 10%" in the second paragraph. I don't see how anyone can use that figure with a straight face... and expect to be trusted.

And no, having a more realistic view of market returns isn't an excuse for us to not save and invest. We save/invest over 15% of our income, and we've done this for years.

The argument over the current expected average rate of return misses the bigger point, that even if we knew that number it means very little over the rest of our working lives (except for you very young kids).

The annualized standard deviation of the S&P is around 15, which equates to about 3.4 SD over any 20 year period. So if you think the average rate of return going forward is 10 then using two standard deviations (95%) you can expect an average return over that 20 year period in the range of 3.2 to 16.8. If you think it is more like 7 then you can expect 0.2 to 13.8. I think plenty of people may think they are being cautious in their estimations, but I don't think anyone ever calculates their rate of return on their equities at 3.2 (so probably a "real" zero), much less 0.2 (so probably a "real" negative) for the next 20 years.

This is why cutting expenses seems so important to me. If your house and debts are paid and your living costs are low, you don't just build savings much more quickly while working (which increasing your working income could also do), you can handle bad returns for many years and even be able to reduce risk in your portfolio greatly.

@ Mark:

My point is that even if you do succeed in terms of investing, what's the point? It's hard to fathom that any financial gain from investing won't be wiped out by lagging pay, reduced pensions, furloughs, foreclosures, unemployment, higher crime rates, cap. gains taxes (on the rise), the probability of pushing back the retirement age for SS, diminished SS benefits, higher healthcare costs, etc.

Also, I do not wish to invest in China as I don't agree with their policies (economically or politically).

Here's the data for the wonderful decade from 1/1/1990 to 1/1/2000.
S&P 500 ..... Ann= +15.29%
Nasdaq 100 . Ann= +32.36%
Old Limey .... Ann= +33.03% .... 12/28/1992 to 1/1/2000

Here's the data from the lost decade from 1/1/2000 to 1/1/2010.
S&P 500 ..... Ann= -2.72%
Nasdaq 100 . Ann= -6.66%
Old Limey .... Ann= +10.10%

In the decade of the 90's the average Buy and Hold investor rode the market up and made good gains but most missed the bubble and the spectacular upward move of the 100 largest Nasdaq companies and the aggressive growth funds or sector funds that held many of them.

In the lost decade the average Buy and Hold investor rode the market Up twice and and then Down twice ending up with moderate losses.

Buy and Hold may work for the average investor but ONLY if the span of his working, saving & investing life just happens to coincide with a very favorable timespan. There's also the issue of major changes in the world and US economies such as the emergence of China and the export of a large percentage of America's manufacturing jobs. You cannot rely on history to keep repeating itself.

I have never invested using Buy & Hold. I have used Fund Selection and Fund Timing. I know the majority have been brainwashed into thinking it doesn't work and they are probably right. The reason being that in order to practice Fund Selection and Fund Timing you need several things that most investors don't have, namely:

1) A comprehensive database of funds and market indexes that is updated daily and the prices adjusted for all dividends and distributions.

2) A database where all of the funds are split up into small families representing every possible sector of the market.

3) Ranking and Screening software that can pick out the funds (or families) that, for any given period, have the best values of annual rate of return, volatility, and max drawdown.

4) Lots of experience in using the software and the time to follow your investments on a daily basis.

I started work in November 1956 and took control of my investments on 12/28/92 after retiring in September 1992. I was an active investor from 12/28/92 until moving out of the stockmarket in November 2007. At this time I moved into CDs, Muni and Corporate bonds, purchased at or below par value which will be held until they mature at which time I receive par value. Meanwhile I receive tax deferred and tax exempt interest equal to 4.5 times my gross salary upon retirement.

I'm so sick of these articles about WHY people aren't saving and investing. This includes the 8-10% return. I've NEVER gotten that and always believed in saving and investing. The reality is some people REALLY can't save even when doing all the right things because wages have not kept up with inflation and the ever-increasing costs of everything. Some are already living within their means or below and it's still tough.

Having said all of this, yes, it's true, that some need to cut out the nonessentials: cable, expensive phone plans, etc. but that does not apply to everyone. People in my circle have stripped down to bare bones without the nonessentials and still can't save because there is nothing left to save after the "essentials." Forget about it if you are a single mom with children to raise. It's not that easy especially if you experience an unexpected illness, job loss, etc. These are variables that you cannnot control. Everyone is not in the same position or have the same resources.

I sympathize with Elizabeth and women like her.
Divorce can often shatter a person's life and has become a major problem in developed countries, especially since the introduction of the birth control pill and the increase in promiscuity that resulted.

My daughter divorced her husband 4 years ago for incompatibility soon after the death of her youngest child, a wonderful 7 year old daughter that died from a brain stem tumor. The father was a wealthy attorney and she received a multi million dollar settlement (which I manage for her) and a very large amount of alimony for 9 years. She was never happy in the marriage but hung in for 18 years for the sake of the children. It took her a couple of years but she is now happier than she has ever been after finding a great guy through on-line dating, an engineer like her father. Her two sons are now adults and the father takes care of their financial needs.

The bottom line is that "Marriage" is very often the most important financial decision you will ever make but most young newly weds don't give it a thought and don't realize it at the time - I know I didn't when we walked up the aisle 55 year ago.

Run you household budget just like I run the country's and you'll be fine.

@Elizabeth: I know a divorced woman with child whose pre-tax income is $40,000 per year. She saves over $10,000 per year.

When I was earning less than $1000 per month, I still managed to put the maximum allowed into an IRA.

There are VERY FEW people who truly cannot save and invest.

Yeah, I agree with Elizabeth. I've said it so many times...I know so many people who can't save anything at all, not because they're out spending their money on iPhones, but because they earn so little that they can barely afford to rent a room (my situation).
Still, I manage to save what tiny little bit I can whenever I get a few unexpected dollars throughout the year.
And there's nothing to really cut back on. I already don't own a car, or a landline, or a TV, or anything really extra. I have what I need to keep making money (like internet and a computer), and don't spend money on 'toys'. (no iPhone for me, ever!)

Investing overseas is now the " in" thing. Kinda sort of followed the whole sending jobs overseas which I find all of it unpatriotic. CPAs treat the foreign stocks as risky and speculative investments. Looking back in history you can see how investing in Japan in the 80's panned out. Not only can you lose big in stocks you have to worry about currency exchanges simultaneously.

For anyone to succeed in investing, one has to take charge for themselves and learn personal finance. Otherwise you can kiss 10% return goodbye. You just cannot buy and hold anymore and expect this rate of return. You must be on top of it and rebalance when needed. Personally, I chose a Fidelity Target fund and got burned holding it and not paying attention to it. I was young and foolish. Now I am being proactive And selecting my own mutual funds, funds that are outperforming the Target fund several fold. Needless to say I am much happier now with the performance and am more motivated to save and invest.

Overall, I agree with the article, avoid the "suckers choice" and just do it!

a divorced woman making 40,000$ a year is in the top 35% of income earners in America. 20% of American households make less than 20,000$ a year. I think that this is a good post, but to be clear, there are a LOT of really poor people in this country.


When I wrote that response I wasn't speaking of myself. However, I am a divorced mother of 3, not 1. When you are single parent and have children, yes, it is very difficult to save. As for myself, I personally have always been a very good saver. Even having said that, I have depleted by EFund several times and built it back up due to unforeseen issues/problems(which is what the E-fund is for). I do not receive child support as my ex is disabled. However, I do received SSI/Disability for our children, so I am mostly alone financially. $40K is not a lot of money for a family--I'm not talking about 1 child either. Sometimes people are supporting other family members, aging parents, etc. So again, as stated above, everyone does not have the same resources. Many divorced women do not have support. For those that do, they are fortunate. Oftentimes, it takes ALL that they have to survive, period. When you have children, there is always an unexpected need, school fee, doc fee, meds, etc. So, even if all someone could save is $25/mo., it can quickly get spent on necessities which makes savings $0. Additionally, the childcare factor comes into play as well as far as earning more. Earning more can oftentimes mean longer hours. So, it's a catch 22. Again, everyone does not have the same resources or the same support structure. Life happens and you cannot always plan for it.

The nation is done bailing its citizens out. Now the nation is looking upt to the citizens for a bailout. WIth huge spedning cuts and maybe tax increases the citizens will have lesser cash on hand and even lesser social security. SO we need to modify our budget accordingly and cut spending and start saving. Those who start early will survive financially till late. Its a FILO (first in last out) model.

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