Friday, February 19, 2010

FLG Gets Confused

...by articles like this one, entitled "Retirement? Good luck with that."

In particular, passages like this bother FLG:
The recent market crash is a sharp reminder of what can go wrong. Sure, the S&P 500's ($INX) almost 35% rebound since March is good news, but it's not enough to make savers whole. From its peak in October 2007 through last March, the S&P 500 lost almost 49%.

Shave 49% off a $100,000 investment and you'll need a 96% gain just to get back to even. Younger savers can overcome that hit with time, but it's a lot tougher for people close to retirement and nigh impossible for retirees forced to pull money out to live on just as the market swoons.

The stock market is risky and even more precisely because of the logic articulated in the second paragraph people close to retirement or in retirement should have less money in stocks. Young savers, however, can safely assume the additional risk.

Perhaps FLG knows more about economics, finance, and investment than the average person, but the basic concept of investing for retirement takes about fifteen seconds to explain. Now, some of the details of how much to invest exactly and things are more complicated, but the asset allocation concepts required for the average 401k or other retirement account ain't rocket science and articles like this do nobody any favors.

3 comments:

George Pal said...

Hey, a crap game is a good deal worse than the market but they’re both more to be depended on than an imaginary Social Security Lockbox (empty no less) or State pension funds that are running huge shortfalls (Illinois, the worst, (wouldn’t you just know it), is almost 50% short).

The advantage of a market: you can always go short; the advantage of a crap game: you can always pull a gun.

The Maximum Leader said...

Note to self, never go to craps/card game with George without packing heat.

Andrew Stevens said...

I have a theory that nobody who is good at personal finance ever goes into journalism. I think it's the only explanation for the shocking state of personal finance journalism in this country.

 
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