Aren't professional managers, by definition, better at this?
Sorry, again. Some professionals manage to rack up outstanding performance over the years, but many are just as emotional as you are.
You don't think the recent volatility in the market was caused only by individual investors, do you? Human nature -- fear and greed -- impact all of us. You just notice your own mistakes more, because they cost you personally.
Why invest for the long run?
Because over the long run, history says you'll come out ahead.
According to the market historians at Ibbotson Associates (now a division of Morningstar), there has never been a 20-year period, going back to 1926, when you would have lost money in a diversified portfolio of large company stocks with dividends reinvested. Without exception, the long-held portfolio came out ahead, even beating inflation!
Wouldn't it be better to start investing during the good times?
I frequently quote a T. Rowe Price study showing that investors who started out putting away a regular sum of money during the toughest bear markets were able to amass a much greater retirement fortune than those who started investing in the market when times were good.
That's because in bear markets, your regular fixed investment amount buys more shares of a fund at lower prices. Then, when the market eventually takes off -- as it always has -- you get more bang for the bucks you have invested.
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The monies that once was allocated by companies for employee pensions is now given to corporate heads in the form of huge pensions, stock options, country club memberships and huge bonuses-regardless of how the company does.
Why do Federal Employees and Congress still have Pensions? They should have 401K plans and not pensions. Imagine how our Congress members would react if their retirement was in a 401K and invested in stocks
I worked for an employer for 22 years who had a pension program in place. The company ended the plan after I had been with them for 17 years and I received $15,936 for my 17 years of service. I rolled this over to a new 401K the company started. I have had an IRA since they started in the 70's. In 1986 we had the tax reform act which said if you had a pension you could not deduct an IRA anymore. So, I had a pension from 1986 to 1990 and I could not deduct an IRA. I then had the pension taken away in 1990, so I lost the pension and the ability to deduct an IRA for 4 years.
By the way the tax reform of 1986 is also when changes to deductions for interest on credit card and autos loans was taken away in favor of only interest deduction on a home loan. Albeit- the start of the home equity loan or ATM loan. This change has totally destroyed the purpose of owning a home. It was as a shelter prior to 1986. After 1986 it was used as a means to live a lifestyle!!! It has ruined the lives of many people who have made bad decisions.
Prices of common stock are no longer related to the value of a company because they pay no dividends. You simply buy a piece of paper in the hope that you can unload it on some sucker who will pay more for it than you did. Preferred shares are better off, at least they pay dividends.
As far as saving for retirement is concerned, we are seriously hosed. Wall street gambled and lost, and the common workers all over the world are having to foot the bill. This has spiked consumer and government debt so high that the only way out is to keep interest rates artificially low for years. We can probably expect an annual return net of inflation of around -1% to -5%, (yes negative returns ahead for about a decade). Even if it looks like you're eking out 1% or 2% gains, inflation is going to eat that and more. What low interest rates do is make the savers pay for the borrowers by eroding the value (i.e. buying power) of money. They should have let the banks fail outright, and instead put the bailout money into (1) creating real jobs by building real infrastructure and (2) insuring individual (not corporate) personal and financial savings, including 401k's, so that people could at least get back what they paid in, up to a value of $250 000. But now that we have let the banks blackmail us into this pickle, the only question is can we pay off the debt that they created and loaded onto our shoulders, or will we end up with hyperinflation and a currency reform like Argentina and Germany, where the average working joe lost 90% of his life savings. The Wall Street Banksters will be fine, they are the ones running the show so they will have advance warning to save their own assets before the dollar tanks.
There are a few issues with this article.
1) Is that stock markets are not investment markets anymore. They are markets with many arbitrary gains (capital gains). Companies do not fund themself in the stock market anymore for the most part. Mostly, they use bonds or borrow from banks. So you buying a piece of stock is not funding much, it's primarily an exchange between you and the seller at a percieved value.
2) Not everyone has a 20 year horizon. Boomers are getting killed right now when they need their 401k and fixed income most. On both ends. Bonds and Cash aren't providing income because interest rates are super low, and stocks have been going no where for basically 12 years now.
It's all well and good to say the markets don't lose over the long term, but you can't ignore when you are needing your 401k money, you may be in a bear market, which will be bad. The possible situation is you are drawing money out and putting no new money in, thus moving forward, your returns will be much smaller.
Good article. If you're a multi millionaire with a big money cushion you can weather ups and downs in the stock market-actually, you probably will get ahead because of the huge latitude. However, with the worker drone that's a different story. The worker drone will be affected more severely during downslides, and may never recover the losses.
Furthermore, one can do very well then see their retirement savings melts away two years before retiring because of a market downturn. That is happening right now. Will they recover? Not.
IStocks have always been a come and go and up and down but I do believe that Banks ARE ripping us off. They use our money for loans, payments and bonuses as if it is thier privlege to use our money-----yet they are giving practically nothing back in return but a half a penny on the dollar. And in this respect they are Ripping US Off!
They tell us not to hide our money unde the matress, yet offer no incentive to deposit it into a bank saving account hence a rip off!
Everybody is getting ripped off every time they go for food or gas because of these crooks!
Are we being "ripped off" by the stock market? Yes...but only add that name to the list of ripper offers. We have oil companies, the Government, our education system, unions, food processers, industry in general, our money intuitions and how many more can you think of.
I feel as if i've a chicken tied to my head and I'm swimming in an alligator pond.
Studying the United States Stock market is a limited vision. Japan's stock market hasn't closed above it's high since 1989 when their real estate bubble burst. It seems very similar to the current United States problem. Japan did the same kind of bank rescue and stimulus that we are currently doing. It didn't work there and it won't work here. I wouldn't look for any market highs for years especially since not only did our real estate bubble burst, we also have and are losing manufacturing jobs at an alarming rate..
The stock market has become the largest ponzi scheme the world has ever known.In fact,all the markets around the world are now totally dependant on constant liquidity injections fueling even more debt,currency debasement and near 0% interest rates.The productive and wealth producing capacity of the division of labor has been replaced by permanent Central Bank intervention.If you do not understand how the COMEX,CFTC,HFT,FOREX,derivatives trading and bond markets work you really have no business investing in the market.
The move toward HFT(high frequency algorithmic trading)all but ensures the destruction of wealth for most people.
These are truly unprecedented economic times we are living in so any comparison to the past is irrelevant.That sound you hear is the inevitable crash of all paper money.The dollar's days as the world's reserve currency are numbered.
Sadly, it isn't a game everyone can win. Stocks need to be sold (converted to cash) for them to be of any use for spending. Anyone that's works a real casino knows what I'm talking about. If everyone hits the jackpot, the house can't afford to pay out. Even if we all pick winning stocks, great, who do we sell them all to? Cash doesn't multiply to suit our desire to cash out out inflated assets, or at least if it did, massive inflation would kick in. I'd actualy wager that the value of the world's stock markets are well about the currency available if everyone wanted to sell at once, and if that ever sinks in, the selloff crash that'll come will make the housing colapse look like a mild slowdown.
Besides, business practices over the last 10 -20 years give me little reason to be optimistic, but more danming is the recent complaint about uncertainty and how it's stopping the business world from moving foreward. They may as well be saying that we can no longer face any challenge the country might face because we're too afraid we might fail. Hard for me to put faith in that.
Not a casino?
OK, there may not be showgirls, Beatles "Love" (pretty awesome BTW), and $10 prime rib, and the hgh-roller may be wearing a tie instead of a Hawaiian shirt, but the institutional investor is "gambling" on his mix of stocks to come up lucky 7s just like Moe from Jersey.
The main difference is that the mega-investors have a huge advantage...supercomputers with sophisticated algorithms that peddle or scoop up massive amounts of shares based on pre-determined triggers. Now, with all that sophistication, there is still no guarantee of "Winner Winner Chicken Dinner!!!", but there is a high likelihood that the markets will continue their volatility and the small time investor and the economy loses-period! Why do you think the exchanges halt computerized trading? It's to prevent mass meltdown, but even though many understand the dangers, the practice still continues.
Stop unregulated hedge funds (not legitimate funds) and any of the trading practices that require a criminal background and/or a PhD to understand!
The main reason we have the individual saving for retirement instead of the company pension is because it is a limited and easily accounted for obligation for the companies. If they choose to match your contributions, their obligation to you is done in any given year, while for pensions the company is on the hook to make the amount of money you've earned available to you for your retirement, and the company takes the risk of adequately funding it.
The last year before 401(k)s were widely available to individuals to save for retirement, the Pension Benefit Guaretee Corp insured about 330,000 pension plans (around 1980). In 2009, I think, they insured 33,000 plans. Give the companies a fixed obligation that they understand and they're all over it.
I see a parallel with Obamacare. Health insurance now, the costs are spiraling with no end in sight for companies. But, if they don't offer health insurance, they pay a fine and their obligation is done. Expect very few companies to offer health insurance after about 5 or 10 years of Obamacare. How's that "you can keep your health plan and doctor if you like them" promise working out? Remember this and see if I'm right in 10 years.
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[BRIEFING.COM] The stock market began the new week on a cautious note. The S&P 500 lost 0.3%, but managed to erase more than half of its opening decline. Thanks to the rebound, the benchmark index reclaimed its 50-day moving average (1976.78) after slipping below that level in the morning.
Equities slumped at the open amid a couple global developments that dampened the overall risk appetite. Continued student protests in Hong Kong and a potential response from China weighed on the ... More
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