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One thing that is common among many people posting here is that their retirement accounts have not returned much.
. However, if you started contributing in the mid 90s,your company does not provide a match, or you have limited plan offerings you could find yourself with no return or even below your principal contribution levels..
This is my situation. My employers never contributed anything, and I was only able to afford my yearly Roth contribution. I've had no significant return. It's just so different for this generation.....
I'm not sure what you have in mind when you say "financial theories", but any serious economic model can explain the current situation rather easily.
If by "traditional model" you mean classical economic theory from over 100 years ago...but if you use a model developed after the depression then everything has been pretty predictable.
Anyhow, people are getting burned in their 401(k)'s, etc because they believed that the future would mimic the past few decades. But what reason was there to believe that in the first place? Indeed, long-term returns in the 9~10% range don't even make sense on a basic level.
I was speaking of financial rates of return used to price savings accounts. I hadn't realized the risk-free rate on T-Bills had moved so low (was thinking 10 yr approx. 2% rate) The Fed current policy is a failure for the people because it does not factor in any inflation. It has not resulted in the desired investment expansion and is bloating the money supply.
If more people are moved out of defined benefit plans and into defined contribution plans the supply of money available for investment will be greater thus reducing return even more.
At a near zero percent return one would have to save over 50% of their net income and live on less than 50% to just be able to maintain a level standard of living not accounting for any increase in the cost of living. This is unrealistic and would lead to higher unemployment in the US as spending would decrease substantially.
do you have more money to spend in your hands ? i dont in fact most of us the last few years have alot less. that money isnt bloating the money supply.
in fact much of it sits in the reserves at the fed bank. the feds bought billions in treasuries ,sold them as they soared and made billions more and that money now sits for the most part.
the perception of it one day being an issue is what has been effecting the gold and commodity markets but the other markets dont see it that way, especiaslly the bond markets.
in fact for every dollar that something has risen someone else is not getting that 1 dollar in business and is poorer for it.
However, if you started contributing in the mid 90s,your company does not provide a match, or you have limited plan offerings you could find yourself with no return or even below your principal contribution levels.
Why? Sure 2000-2009 was crap for the stock market but since the mid 90s which would include the recovery in 2009-2011 you'd still be ahead of your principle. Also most 401ks at least offer some form of bond fund, and I'd guess most also have an international equities fund so one doesn't have to assume everyone is carrying around a 100% US stock allocation.
Growth of 10k Since 1995, according to Morningstar:
Bond Idx 28k
Stock Market Idx 35k
Total International Idx 17k
I don't see how one would be even or upside down on their principal contributions unless they did some poorly timed fear based trading along the way.
do you have more money to spend in your hands ? i dont in fact most of us the last few years have alot less. that money isnt bloating the money supply.
in fact much of it sits in the reserves at the fed bank. the feds bought billions in treasuries ,sold them as they soared and made billions more and that money now sits for the most part.
the perception of it one day being an issue is what has been effecting the gold and commodity markets but the other markets dont see it that way, especiaslly the bond markets.
in fact for every dollar that something has risen someone else is not getting that 1 dollar in business and is poorer for it.
You are right. Most of the money ended up in financial institutions home and abroad. Some of it did make its way into new loans for borrowers with good credit who exchanged higher rate loans for lower rate ones. However, for the majority of the people, the accommodative policy has not resulted in them being better off.
In regard to the 401k situation, if rates of return on 401k do not out pace inflation then continuing to put your money in a 401k makes little sense since it will not provide a viable retirement plan for the majority of people.
thats not true. first off just the forced savings aspect of the 401k is a huge plus for most folks.
i point out all the time fidelity has shown that the average account balance for those over 55 and contributing 1/2 to max for the lost decade saw their balance jump from 96k to 216k. 1/3 was gains ,2/3 contributions and matching.
401k's are not just about equities,folks have many many other choices including buying the income stuff in their 401k and buying the equities,gold,reits etc in their taxable. no one says all your investment money has to go into the 401k if your choice of asset class isnt offered. just do some.
i run both my permanent portfolio and one from a newsletter. both were up over the lost decade . the permanent portfolio averaged over 9% just using a simple mix of gold/bonds/total market fund/cash.
a 401k is only a vehicle classification ,it not the investment.
Last edited by mathjak107; 01-22-2012 at 07:03 AM..
I'm 53, Wife 49 with total 401k, Roth, Brokerage, Bonds etc of $158K. $50k was windfalls captured over the years. Started very small when I was 30yrs old for 11 yrs then into 401K with 8% of mine and 4% Co Match. Seems small to me, but we've never been high earners (combined $50k range in our late 40's, $68k last yr).
i run both my permanent portfolio and one from a newsletter. both were up over the lost decade . the permanent portfolio averaged over 9% just using a simple mix of gold/bonds/total market fund/cash.
a 401k is only a vehicle classification ,it not the investment.
Out of curiosity what bond fund are you in? I have fidelity and am probably 95% stocks to bonds and with the recent up tick in stocks I think its time to diversify more and I'm clueless on bonds.
i run 2 porfolios ... the one called the permeant portfolio uses only long term treasuries TLT but i dont recommend that by itself with out the rest of the components.
the other uses the fidelity insight newsletter which we subscribers pay for so im kind of limited to what info i can give out on that one.
i do like fideliy high yield, investment grade bond, strategic income ,short term bond and for an aggressive play new market income.
Last edited by mathjak107; 01-22-2012 at 12:03 PM..
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