Warren Wealth Article Archive
Articles Posted During 06/2010
Recession Recoveries: 1990-91
Monday 06/14/2010 - 11:34:23 am
What happened, how the markets came back,
and the rewards for the patient investor.
presented by Jacob Warren
The numbers. This one lasted eight months (about average for U.S. recessions), and it compares interestingly with the economic downturn today. Unemployment hit 7.8% during this recession, home prices in the nation’s ten largest metropolitan areas sank an average of 8.3%, and the stock market dropped 21%, with the decline bottoming out in October 1990.1 As for GDP, the numbers were 0.0% for 3Q 1990, -3.0% for 4Q 1990, and -2.0% for 1Q 1991.2
The reasons. Some trace the roots of this recession all the way back to Black Monday in 1987. But most historians and economists point to falling real estate values, a decline in the commercial real estate market, and a credit crisis (featuring the infamous savings and loan collapses of the late 1980s). Oil prices also rose in early 1990 thanks to Iraq’s invasion and conquest of Kuwait, so consumer and investor confidence fell as a result of supply disruption and months of war in the Middle East.
The rebound. The DJIA was at 2,900.97 on June 1, 1990. It fell 21% in the subsequent downturn, but it hit a new milestone close (3,004.46) on April 17, 1991.3 The broad stock market returned 28% from October 1990 to March 1991.4 In November alone, stocks gained 6%.5
The real bull run was just ahead. Unbeknownst to stock market investors, the Dow would pass that 3,000 milestone and crest at 11,722.98 in less than nine years.6 The S&P 500 actually gained more than 5% during the recession; three years after the recession ended, it was up 26% and ten years later it was up 302%.7 The NASDAQ, of course, enjoyed a banner year in 1991 after going public, gaining nearly 57%; the tech stock boom was underway.8
The lesson. The markets do recover, often more quickly than we imagine – and historically, the persistent investor has been rewarded for his or her optimism. In the current economy, it helps to take a satisfying look back and see how the markets have rebounded and prospered since.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
[Permalink]
and the rewards for the patient investor.
presented by Jacob Warren
The numbers. This one lasted eight months (about average for U.S. recessions), and it compares interestingly with the economic downturn today. Unemployment hit 7.8% during this recession, home prices in the nation’s ten largest metropolitan areas sank an average of 8.3%, and the stock market dropped 21%, with the decline bottoming out in October 1990.1 As for GDP, the numbers were 0.0% for 3Q 1990, -3.0% for 4Q 1990, and -2.0% for 1Q 1991.2
The reasons. Some trace the roots of this recession all the way back to Black Monday in 1987. But most historians and economists point to falling real estate values, a decline in the commercial real estate market, and a credit crisis (featuring the infamous savings and loan collapses of the late 1980s). Oil prices also rose in early 1990 thanks to Iraq’s invasion and conquest of Kuwait, so consumer and investor confidence fell as a result of supply disruption and months of war in the Middle East.
The rebound. The DJIA was at 2,900.97 on June 1, 1990. It fell 21% in the subsequent downturn, but it hit a new milestone close (3,004.46) on April 17, 1991.3 The broad stock market returned 28% from October 1990 to March 1991.4 In November alone, stocks gained 6%.5
The real bull run was just ahead. Unbeknownst to stock market investors, the Dow would pass that 3,000 milestone and crest at 11,722.98 in less than nine years.6 The S&P 500 actually gained more than 5% during the recession; three years after the recession ended, it was up 26% and ten years later it was up 302%.7 The NASDAQ, of course, enjoyed a banner year in 1991 after going public, gaining nearly 57%; the tech stock boom was underway.8
The lesson. The markets do recover, often more quickly than we imagine – and historically, the persistent investor has been rewarded for his or her optimism. In the current economy, it helps to take a satisfying look back and see how the markets have rebounded and prospered since.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
[Permalink]
Recession Recoveries: 1981-82
Monday 06/07/2010 - 4:38:16 pm
What happened, how the markets came back,
and the rewards for the patient investor.
presented by Jacob Warren
The numbers. This 15-month recession represented the biggest struggle for the Reagan administration during its first term. People often remember this deep recession in terms of unemployment: in 4Q 1981, 10.5% of Americans were out of work; 28% of teenagers and 20% of African-Americans were without jobs.1 That was the highest unemployment rate since the Great Depression; to top it off, 17,000 businesses failed during the downturn.2 A bear market was firmly in place: the Dow Jones Industrial Average hadn’t topped the 1,000 mark in five years.3 GDP fluctuated from quarter to quarter – between 2Q 1981 and 3Q 1982, it ranged from 4.9% to -6.4%.4
The reasons. While a brief recession did occur in 1980, historians commonly attribute the 1981-82 recession to the “tight money” policy adopted by the Federal Reserve. During the late 1970s, the U.S. was experiencing double-digit inflation. Fed chairman Paul Volcker spearheaded a policy decision to slow the growth rate of the money supply to combat inflationary pressures. The Fed set interest rates higher and higher –by December 1980, the prime rate had hit its all-time high, 21.5%. Volcker’s radical stance was painful for the banking sector, the real estate sector, and the overall economy.5 But there would be a spectacular upside.
The rebound. In March 1980, inflation approached 14.8%. By July 1983, it was under 2.5%, and it would stay in single digits for the next quarter-century.6 The Dow would gain 1,500% over the next 17½ years, rising from an August 1982 low of 777 to 11,722.98 in January 2000.7 The S&P 500, which had last topped 100 in 1968, would hit 200 for the first time by Thanksgiving of 1985.8 The NASDAQ Composite Index, which had reached the 200 mark in 1980, would reach 300 for the first time in May 1983 and 400 in May 1986.9 By the mid-1980s, unemployment levels had notably dropped and GDP was back in the positive column.
The lesson. After almost a decade of gloomy economic headlines and a staunch bear market, Americans were quite pessimistic about stock market investment and the future of the economy at this point. But the markets do recover, often more quickly than we imagine – and as this example shows, historically the persistent investor has been rewarded for his or her optimism. Today, it helps to take a satisfying look back and see how the markets have rebounded and prospered since economic downturns and detours like these.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations.
1 blogs.moneycentral.msn.com/topstocks/archive/2008/05/12/could-a-2008-2009-recession-wipe-out-seven-million-jobs.aspx [5/12/08]
2 pbs.org/wgbh/amex/reagan/peopleevents/pande06.html [8/08]
3 the-privateer.com/chart/dow-long.html [8/08]
4bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1981&LastYear=1982&3Place=N&Update=Update&JavaBox=no#Mid [7/31/08]
5 marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx?guid=%7BFC39F929-B835-431D-90E7-C48585790133%7D [8/22/07]
6 inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=2 [8/08]
7 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average [8/08]
8 answers.com/topic/s-p-500 [8/08]
9 quotes.nasdaq.com/aspx/StatisticalMilestones.aspx [8/08]
[Permalink]
and the rewards for the patient investor.
presented by Jacob Warren
The numbers. This 15-month recession represented the biggest struggle for the Reagan administration during its first term. People often remember this deep recession in terms of unemployment: in 4Q 1981, 10.5% of Americans were out of work; 28% of teenagers and 20% of African-Americans were without jobs.1 That was the highest unemployment rate since the Great Depression; to top it off, 17,000 businesses failed during the downturn.2 A bear market was firmly in place: the Dow Jones Industrial Average hadn’t topped the 1,000 mark in five years.3 GDP fluctuated from quarter to quarter – between 2Q 1981 and 3Q 1982, it ranged from 4.9% to -6.4%.4
The reasons. While a brief recession did occur in 1980, historians commonly attribute the 1981-82 recession to the “tight money” policy adopted by the Federal Reserve. During the late 1970s, the U.S. was experiencing double-digit inflation. Fed chairman Paul Volcker spearheaded a policy decision to slow the growth rate of the money supply to combat inflationary pressures. The Fed set interest rates higher and higher –by December 1980, the prime rate had hit its all-time high, 21.5%. Volcker’s radical stance was painful for the banking sector, the real estate sector, and the overall economy.5 But there would be a spectacular upside.
The rebound. In March 1980, inflation approached 14.8%. By July 1983, it was under 2.5%, and it would stay in single digits for the next quarter-century.6 The Dow would gain 1,500% over the next 17½ years, rising from an August 1982 low of 777 to 11,722.98 in January 2000.7 The S&P 500, which had last topped 100 in 1968, would hit 200 for the first time by Thanksgiving of 1985.8 The NASDAQ Composite Index, which had reached the 200 mark in 1980, would reach 300 for the first time in May 1983 and 400 in May 1986.9 By the mid-1980s, unemployment levels had notably dropped and GDP was back in the positive column.
The lesson. After almost a decade of gloomy economic headlines and a staunch bear market, Americans were quite pessimistic about stock market investment and the future of the economy at this point. But the markets do recover, often more quickly than we imagine – and as this example shows, historically the persistent investor has been rewarded for his or her optimism. Today, it helps to take a satisfying look back and see how the markets have rebounded and prospered since economic downturns and detours like these.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations.
1 blogs.moneycentral.msn.com/topstocks/archive/2008/05/12/could-a-2008-2009-recession-wipe-out-seven-million-jobs.aspx [5/12/08]
2 pbs.org/wgbh/amex/reagan/peopleevents/pande06.html [8/08]
3 the-privateer.com/chart/dow-long.html [8/08]
4bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1981&LastYear=1982&3Place=N&Update=Update&JavaBox=no#Mid [7/31/08]
5 marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx?guid=%7BFC39F929-B835-431D-90E7-C48585790133%7D [8/22/07]
6 inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=2 [8/08]
7 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average [8/08]
8 answers.com/topic/s-p-500 [8/08]
9 quotes.nasdaq.com/aspx/StatisticalMilestones.aspx [8/08]
[Permalink]
Interpreting The Correction
Wednesday 06/02/2010 - 9:25:19 am
A blip in the bull market? Or is more selling ahead? A look at some opinions.
Provided by Jacob Warren
Sooner or later, a bull market experiences a correction: a decline of at least 10% from a peak. We’ve now seen the first correction in the present bull market: the Dow went below 10,000 on May 25 (and rebounded).1
When a correction occurs, there is the chance that it portends something greater – that is, the eventual end of a bull. With so much talk over the last year about a potential “double-dip” recession (shades of the 1970s), a 1,000-point Dow reversal naturally makes people wonder what the future holds.
The mood still seems bullish. We have a debt situation in Greece, Portugal, Italy and Spain that could potentially leave U.S. and European banks vulnerable. We also watched the euro slide in May, which left U.S. markets dealing with a stronger dollar (a development that harshly impacted dollar-denominated commodities like gold and oil). However, bulls remind us that we are seeing a definite U.S. economic recovery.
As Bill Smead, CIO of Smead Capital Management, told CNBC: “While everyone’s worried about [Europe], things are improving significantly for U.S. consumers. American corporations are the most flush with cash they’ve been for 25 to 30 years and profit margins are excellent.” Art Hogan, chief market strategist at Jefferies & Co., also weighed in on that cable channel, cautioning CNBC that the euro’s May struggles were being “misinterpreted as a barometer for an economic slowdown.”1,2
Respected Hong Kong-based wealth manager Puru Saxena called May’s correction “a routine pullback” and told CNBC that in his opinion, the current bull market will go on into 2012. He sees the Federal Reserve increasing the money supply if U.S. stocks correct more severely. “Money printing is going to keep this rally going for at least another couple of years until such time when the market forces the central banks to raises interest rates,’ he commented.3
If the bulls run past the current anxiety and run for another couple of years or more, "the first year will win the prize by far when it comes to magnitude of returns," thinks Bob Doll, chief equity strategist at BlackRock. Doll sees the European debt crisis as an “aftershock” from the “major financial earthquake” of 2008, and he thinks additional rude awakenings could occur during this bull run.4
Tobias Levkovich, chief U.S. equity strategist at Citi Investment Research, reminded USA TODAY that "normally, economic recoveries last a couple of years" or longer, which promotes relative longevity of bull markets. As the economy recovers, so do earnings – and great earnings translate to good times on Wall Street.4
But is this just a cyclical bull in a secular bear? That’s another thought. Some market-watchers think this is all the current bull market represents. They point to the mid-1970s, a time which also saw a struggling U.S. economy and major ascents and descents in the Dow. They reference the 1930s, when the market underwent similar gyrations. In DJIA history, cyclical bulls within secular bears have averaged 22.5 months, with an average gain of better than 60%.5
We have seen increased volatility, and the restlessness may hang around for a while. At SmartMoney.com, Hennion & Walsh CIO Kevin Mahn shared his view that “we’re going to see a series of starts and stops throughout 2010. The market clearly doesn’t have a direction right now because of all the political and macroeconomic uncertainty.” Tom Samuels, Palatir Fund’s portfolio manager, feels that “May is about the market shifting its focus from the economic recovery story to a debt-driven reality, which is not so rosy a picture.” He sees a bear market ahead if the sovereign debt crisis lingers.6
To wrap up, a little history. While the past is no indication of the future when it comes to stock market performance, we can draw encouragement from it. In June, the current bull market will head into its fifteenth month, so it is not exactly long in the tooth. According to InvesTech Research, all mature bull markets since 1947 have lasted at least 24 months and averaged four years in duration.4
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations
1 – cnbc.com/id/37334721 [5/25/10]
2 - marketwatch.com/story/us-stocks-fall-on-unexpected-jobless-claims-jump-2010-05-20?dist=afterbell [5/20/10]
3 - cnbc.com/id/37397264 [5/28/10]
4 - usatoday.com/money/markets/2010-03-09-bullanniversary09_CV_N.htm [3/9/10]
5 - seekingalpha.com/article/111382-cyclical-bull-meets-secular-bear [12/18/08]
6 - smartmoney.com/investing/stocks/is-the-correction-over-yet/ [3/9/10]
[Permalink]
Provided by Jacob Warren
Sooner or later, a bull market experiences a correction: a decline of at least 10% from a peak. We’ve now seen the first correction in the present bull market: the Dow went below 10,000 on May 25 (and rebounded).1
When a correction occurs, there is the chance that it portends something greater – that is, the eventual end of a bull. With so much talk over the last year about a potential “double-dip” recession (shades of the 1970s), a 1,000-point Dow reversal naturally makes people wonder what the future holds.
The mood still seems bullish. We have a debt situation in Greece, Portugal, Italy and Spain that could potentially leave U.S. and European banks vulnerable. We also watched the euro slide in May, which left U.S. markets dealing with a stronger dollar (a development that harshly impacted dollar-denominated commodities like gold and oil). However, bulls remind us that we are seeing a definite U.S. economic recovery.
As Bill Smead, CIO of Smead Capital Management, told CNBC: “While everyone’s worried about [Europe], things are improving significantly for U.S. consumers. American corporations are the most flush with cash they’ve been for 25 to 30 years and profit margins are excellent.” Art Hogan, chief market strategist at Jefferies & Co., also weighed in on that cable channel, cautioning CNBC that the euro’s May struggles were being “misinterpreted as a barometer for an economic slowdown.”1,2
Respected Hong Kong-based wealth manager Puru Saxena called May’s correction “a routine pullback” and told CNBC that in his opinion, the current bull market will go on into 2012. He sees the Federal Reserve increasing the money supply if U.S. stocks correct more severely. “Money printing is going to keep this rally going for at least another couple of years until such time when the market forces the central banks to raises interest rates,’ he commented.3
If the bulls run past the current anxiety and run for another couple of years or more, "the first year will win the prize by far when it comes to magnitude of returns," thinks Bob Doll, chief equity strategist at BlackRock. Doll sees the European debt crisis as an “aftershock” from the “major financial earthquake” of 2008, and he thinks additional rude awakenings could occur during this bull run.4
Tobias Levkovich, chief U.S. equity strategist at Citi Investment Research, reminded USA TODAY that "normally, economic recoveries last a couple of years" or longer, which promotes relative longevity of bull markets. As the economy recovers, so do earnings – and great earnings translate to good times on Wall Street.4
But is this just a cyclical bull in a secular bear? That’s another thought. Some market-watchers think this is all the current bull market represents. They point to the mid-1970s, a time which also saw a struggling U.S. economy and major ascents and descents in the Dow. They reference the 1930s, when the market underwent similar gyrations. In DJIA history, cyclical bulls within secular bears have averaged 22.5 months, with an average gain of better than 60%.5
We have seen increased volatility, and the restlessness may hang around for a while. At SmartMoney.com, Hennion & Walsh CIO Kevin Mahn shared his view that “we’re going to see a series of starts and stops throughout 2010. The market clearly doesn’t have a direction right now because of all the political and macroeconomic uncertainty.” Tom Samuels, Palatir Fund’s portfolio manager, feels that “May is about the market shifting its focus from the economic recovery story to a debt-driven reality, which is not so rosy a picture.” He sees a bear market ahead if the sovereign debt crisis lingers.6
To wrap up, a little history. While the past is no indication of the future when it comes to stock market performance, we can draw encouragement from it. In June, the current bull market will head into its fifteenth month, so it is not exactly long in the tooth. According to InvesTech Research, all mature bull markets since 1947 have lasted at least 24 months and averaged four years in duration.4
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations
1 – cnbc.com/id/37334721 [5/25/10]
2 - marketwatch.com/story/us-stocks-fall-on-unexpected-jobless-claims-jump-2010-05-20?dist=afterbell [5/20/10]
3 - cnbc.com/id/37397264 [5/28/10]
4 - usatoday.com/money/markets/2010-03-09-bullanniversary09_CV_N.htm [3/9/10]
5 - seekingalpha.com/article/111382-cyclical-bull-meets-secular-bear [12/18/08]
6 - smartmoney.com/investing/stocks/is-the-correction-over-yet/ [3/9/10]
[Permalink]
The 2 Biggest Retirement Misconceptions
Wednesday 06/02/2010 - 9:15:40 am
While the idea of retirement has changed, certain financial assumptions haven’t.
Provided by Jacob Warren
We’ve all heard about the “new retirement”, the mix of work and play that many of us assume we will have in our lives one day. We do not expect “retirement” to be all leisure. While this is becoming a cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven’t really changed with the times.
In particular, there are two financial misconceptions that baby boomers can fall prey to – assumptions that could prove financially harmful for their future.
#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is “historically”. When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.1
However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly – the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.2
If you’re reading this article, chances are you might be wealthy or at least “affluent”. And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.
Here’s the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years … or longer. So assuming you’ll only need 10 or 15 years worth of retirement money could be a big mistake.
In 2010, the American Academy of Actuaries says that the average 65-year-old American male can expect to live to 84½, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.3
Most people don’t realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2 …
#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.
Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.
Will the minimal inflation we’ve seen at the start of the 2010s continue for years to come? Don’t count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. Your dollar buys less and less.
Here’s a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?
This is an extreme example, but that’s what can happen if your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.
Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing – we need to be prepared financially for the cost of acute, chronic and long-term care.
As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.
No one wants the “Rip Van Winkle” experience in retirement. No one should “wake up” 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.
How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you’re at, it is vital to avoid the common misconceptions and proceed with clarity.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
, www.montoyaregistry.com, www.marketinglibrary.net
Citations
1 – nytimes.com/2008/04/27/weekinreview/27sack.html?pagewanted=print [4/27/08]
2 – usatoday.com/tech/science/2005-10-23-aging-centenarians_x.htm [10/23/05]
3 – usatoday.com/money/perfi/retirement/2010-04-30-401k28_CV_N.htm [5/3/10]
[Permalink]
Provided by Jacob Warren
We’ve all heard about the “new retirement”, the mix of work and play that many of us assume we will have in our lives one day. We do not expect “retirement” to be all leisure. While this is becoming a cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven’t really changed with the times.
In particular, there are two financial misconceptions that baby boomers can fall prey to – assumptions that could prove financially harmful for their future.
#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is “historically”. When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.1
However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly – the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.2
If you’re reading this article, chances are you might be wealthy or at least “affluent”. And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.
Here’s the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years … or longer. So assuming you’ll only need 10 or 15 years worth of retirement money could be a big mistake.
In 2010, the American Academy of Actuaries says that the average 65-year-old American male can expect to live to 84½, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.3
Most people don’t realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2 …
#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.
Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.
Will the minimal inflation we’ve seen at the start of the 2010s continue for years to come? Don’t count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. Your dollar buys less and less.
Here’s a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?
This is an extreme example, but that’s what can happen if your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.
Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing – we need to be prepared financially for the cost of acute, chronic and long-term care.
As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live - and how long retirement may last - growth investing is extremely important.
No one wants the “Rip Van Winkle” experience in retirement. No one should “wake up” 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.
How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you’re at, it is vital to avoid the common misconceptions and proceed with clarity.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
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Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
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Citations
1 – nytimes.com/2008/04/27/weekinreview/27sack.html?pagewanted=print [4/27/08]
2 – usatoday.com/tech/science/2005-10-23-aging-centenarians_x.htm [10/23/05]
3 – usatoday.com/money/perfi/retirement/2010-04-30-401k28_CV_N.htm [5/3/10]
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