Friday, August 2, 2013

Don't Count on Savings

The failing of the economy to allow for savings sufficient for taking care of oneself in later years is not clear to most people, including many economists. It is not clear to many financial advisors. That is because saving and investment is rarely set up with goals and definitions: Specifically what do I want the money to do? What period of time? What level of spending? What degree of loss of purchasing power to plan for? How will the asset be invested during the period it is used?

Instead people save what they feel they can and try to put it where they hope they can get the best return. Few study sufficiently for the task. Few use professionals properly. Few actually like doing the work investing and follow the news. This last is an important point. For example, as a financial advisor for twenty years, I realized that I was not a stock picker. I wasn’t interested. It was not an area that I wanted to spend my time. I found professionals who did find it interesting and were successful. I used the division of labor for my and my clients’ benefit. The whole “do it yourself” approach is wrong headed. Professionals often use the amateur investor as a counter-trend indicator: when the small investor begins buying it is time to sell.

What you can see in just the equity market is that since the end of the tech boom in something like 2002 the stock market has not kept pace with the loss of purchasing power. It is not that it has just not had good returns. What returns it has had in relation to what a dollar can buy, the equity market in the U.S. has lost value.

The market that has actually risen, is the bloated Federal bond market. Guess what happens when the Fed stops buying and attempts to get rid of some of its astonishing horde of bonds. It won’t be pretty. The stock market will tend to dive as well.

So those people who are suggesting that people aren’t being personally responsible and saving enough and that is why we can’t get rid of Social Security are not paying attention. Government actions are destroying assets and our ability to save. That is the box we are in.

But it does take a long-term view to realize the size of the box and that it is getting smaller. Current politicians can’t see it because of their self-imposed philosophic blinders. Banking, financial, and business leaders by and large aren’t looking either. We can’t get even a modest public comment about our future and the entitlement programs out of any of them.

We are heading for this blind. Surprise!

1 comment:

  1. A reset of expectations is definitely required. The notion of retirement at a higher or decent standard of living, or one comparable to those retired right now, seems elusive to me now, although I have saved feverishly the last 15 years (I'm only 43). I'm thinking the US will be a very expensive place to retire indeed - particularly for food, shelter and medicines. Retiring low-profile in rural Mexico, despite the cartel violence and pervasive societal corruption, strangely seems more and more attractive and even feasible.