During my professional career I have not encountered a period of negative growth and volatility like the one we are experiencing now. The United States is the greatest country in the world and we are strong enough, with the right leadership, to fix whatever calamity we may face.
Our favorite pastimes may be baseball and apple pie, but right behind those two is pinpointing who to blame in a crisis. I thought I’d throw in my two cents on who to blame for the losses in his retirement portfolio. I came up with ten, I’m sure we can find more. These are the guilty persons or entities (what is an entity?):
1. The housing bubble. It’s really simple: if you build too many houses and then have too few buyers, there will be a collapse in the real estate market. Combine that with an overly lenient government money supply and government policy to force banks to lend money to people who can’t afford it, and that will destroy a market. If you get a zero down payment, no loan documents, you don’t look in the game at all. That creates a moral hazard, a person can more easily walk away from something in which he is not personally involved. If he invested in houses, or the value of his house fell, so did his retirement portfolio. Home equity, whether to sell or leverage, or simply to pay off in retirement, is a key component of your retirement planning. You are hurt when bad credit borrowers who have a history of defaulting do the same thing in the real estate market.
I knew a flight attendant flying from Atlanta to Tampa who, in the mid-2000s, was remodeling pre-construction condos for a 50/50 profit on her spare time. No experience in the market, construction or real estate. Do the math, it didn’t end well. As Tyrone Green would say, “her situation is also as such”.
2. The Government. Who doesn’t like to blame the government, which if we think long enough can probably be blamed for everything. But I digress. Taxing and spending, and then spending twice as much as you earn each year, destroys the value of our currency, erodes market confidence, and is ultimately unsustainable. This affects government programs you’ll rely on in retirement, like Medicare and Social Security, and puts what you’ve saved at risk of purchasing-power-destroying inflation.
3. The Federal Reserve. “The spring of the interest rate”. That’s a Ty-ism. For a decade we haven’t had good fixed rate options for a retirement investment due to the Federal Reserve’s artificially low interest rate policy. This has limited the growth rate of your retirement plan, and at the same time, the “spring” I referred to earlier can blow up, raising rates and causing inflation just as you start spending your retirement money. It would be a double whammy of limited growth followed by limited purchasing power.
4. The Wall Street Establishment. Far from us little ones is the power structure of Wall Street. I am not referring to Wall Street entrepreneurs and capitalists, I am referring to corporate bureaucrats and old school traders whose buy and hold strategy has given us the same investments with the same results. What did Einstein once say (?) – “that the definition of insanity is doing the same thing over and over again and expecting a different result.”
5. The new Wall Street. Thanks to the internet, investment companies have offered you the opportunity to make your own purchases and sales. You can do many of these trades for as little as $7 per trade. However, if you are a construction manager and need brain surgery, would you do it yourself? There is a reason why you are looking for experts or trained people in a profession. The New Wall Street, which allowed him to conduct his own transactions online, resulted in a simple truth: “He did his own research, chose his own mutual fund, and lost his own money.”
6. The Broker who gave me bad advice. I’m sure this sounds very familiar: “We’re in this for the long haul. Or, “…stay the course.” My personal favorite line is, “Don’t worry, there’s never been a 10-year period of weight loss.” market…” Really? The last 10 years, the S&P is down 25%. The broker is a primary target to blame (hopefully yours isn’t your brother-in-law).
7. Osama bin Laden. The terrorist attacks of 9/11 fundamentally altered the global village. Our government’s unwillingness to tackle this issue with our full arsenal of hard and soft power leaves us in a dilemma. The market hates uncertainty, it is the lifeblood of the bear market and that fuels stagnation and losses in your portfolio.
8. BP oil spill. Time to wake up and smell the crude oil in the gulf! The Gulf of Mexico, as it is known and known, has been gone for generations. Livelihoods and employment have been gone for generations. This means that there will be no more contributions to the plan. It means that people are selling stocks and not buying stocks, which, as the vicious cycle turns, drives down stock values. Vacation spots have been gone for generations. Real estate values have and will collapse on the shores. Who owns real estate? REITS, public companies and individuals. And I have yet to mention the taxpayer cleanup that will raise taxes one way or another. Oil Spill is not a person or an entity, but BP is, and is a big player in your portfolio, whether you like it or not.
9. The Greeks. It is really a debt crisis of the eurozone, not just the Greeks, but this has led to another bailout. And we help with the rescue! Because our government historically chooses to spend our money supporting other governments that haven’t exercised fiscal responsibility, making us look thrifty by comparison, that takes a toll on our retirement. As I tried to explain to my children: “Because we are spending ourselves in oblivion trying to rescue countries that have spent themselves in oblivion.”
10. YOURSELF! Ultimately, it’s his money, not Wall Street’s, not his broker’s, not the government’s (at least not yet). Take responsibility for your actions. Instead of absorbing these losses, put your money in a safe place where you can earn a reasonable rate of return.
As a final thought, there are really only three protected places where you can still receive varying degrees of growth, but that’s another article. If you want to find out, you can contact my company at any time. For now, I’ll leave you with this parting note: take YOURSELF off the list, take action, take responsibility, protect your retirement plan…because there’s enough blame for losses already.