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I guess a lot of people just conceptually do not understand that.
You can possibly lose part of your principal on virtually anything you buy or invest in.
Too many people are so financially risk-averse that they unknowingly behave just like a horse in a burning barn: they cling to their “safe space” even at the cost of burning to death, because leaving their (illusory) place of safety just feels too risky.
(This is one of the reasons I support Social Security, as it helps protect these folks from their own risk-averse nature.)
I understand your point. I have a new neighbor who is a professional poker player; he's 28 yo and just bought a house on my block for about $2 Million. He is certainly skilled.
Still, given the house rake, the average EV of the wagers at the table is negative. Clearly, some players are quite skilled and make a living from it.
Ditto for blackjack: a skilled and competent card counter can generate a positive EV -- at least until he's caught.
My larger point is investing is not gambling. In fact, investing by buying stock in gambling companies (LV Sands, Penn National Gaming, William Hill, MGM Resorts International, Boyd Gaming, etc) is still investing.
I think that's one of the problems, while "the data shows" is great but unfortunately for many people savings is emotional, visceral.
I have a few cousins in Brooklyn ( I grew up in Harlem) we're about the same age, late 50-60's one retired, one will retire within a few years. They both have good pensions as they worked for the city of new york. Both inherited a bit (not a lot) as our parents unfortunately are passing and leaving us brownstones.
Anyhoo, they absolutely will not invest. All they see and hear are the horror stories of 2008. No matter how many times I tell them I not only made back what I lost and that the market has been on a tear. no matter how much I tell them they will need inflation protection and on and on, they are not going to do it.
And mathjak, these are NOT stupid people (people here make way too many assumptions). One's an attorney, the other a Social services department head.
I think another factor, at least in my case is that I am in no way a financial guru. Never wanted to be, still hate it with the heat of 10 burning suns. It was forced upon me when I was widowed at a young age with 3 young kids. Now I pretty much knew the basics, did take a few economic classes but I grew up in a "pension" age, was no such thing as IRA and 401K's when I started my working career.
Many folks fear the unknown and it can be paralyzing.
I hear and see much the same thing.
My dad is a blue collar factory worker. Got laid off in 2008 and was forced to take a low paying job ($15-$17/hr) until last summer. For awhile, it also involved commuting 500 miles a week. He got a job at $27/hr this summer and gets plenty of overtime, but they are probably worse off at 60 than at 50.
Parents siphoned from their retirement plans in a "drip, drip, drip" fashion to try and keep up a lifestyle they could no longer really afford. Years later, those savings are not only not replenished (they say it won't ever happen again if he's not in the market), but they got none of the gains from the intervening years had they simply left it alone and rode it out. By the way, they're just 60 now.
And many of the folks he worked with went whole hog and dumped it all at the bottom. Many folks liquidated their retirement savings at the worst possible moment to try and keep up how they previously lived, but still ended up defaulting and filing bankruptcy. Had they just defaulted, at least the retirement savings would still be there.
I was still in business school at the time and didn't have much money, but I played updown.com and invested what little bit I could into a brokerage account. Unfortunately, I hadn't touched that in years and had only several hundred dollars in there when I got back into the account early this year.
Some reasonably aggressive 401k savings this past year and a half, a side job for a bit, dumping a car once the negative equity was cleaned up/buying cheaper car in cash, finding out what I actually had left from 401ks at previous jobs (but didn't have documented), some successful day trading, Bitcoin, and aggressive debt repayment have taken my net worth from probably close to -$20,000 at the first of the year to mildly positive.
Every kid should be taught the power of compounding when in high school. I can assure you it is a powerful life long lesson.
I think it should be taught much younger. Even Elementary School children understand the concept of delayed gratification, which of course is the basis of investing.
Sit a kindergartener at a table, and put an M&M on a plate in front of her. Tell her "you can eat an M&M now, but if you wait 10 minutes, you can have 2 M&Ms. But if you eat the single M&M before the 10 minutes is up, you won't get that second M&M."
Some kindergartners can wait ("invest for the future") and some cannot. But this type of scenario teaches the underpinnings of the time value of money (or time value of M&Ms).
Every kid should be taught the power of compounding when in high school. I can assure you it is a powerful life long lesson.
That used to be taught in HS. The class was "Business Math" usually an elective.
Back in the 70's you only needed 3 years of Math..Algebra, Geometry and Trig.
I took Business Math in my senior year. Learned about loans, amortization, compounding, etc.
In hindsight it was one of the most practical classes I took.
I think today's HS curriculum has everyone pointed towards college with Algebra, Geometry, Algebra 2 and Calculus.
My father, like so many young men of his generation, lied about his age & joined the Navy the day after Pearl Harbor. Years later, he died unexpectedly when I was 12 years old, leaving behind an uneducated widow ill-prepared to be a head-of-household (she grew up in a rural agricultural area without either electricity or indoor plumbing), my older high-functioning autistic brother, my younger severely mentally retarded sister, and me. And a pile of debts with no assets to speak of.
I grew up quickly. Being too young for a work permit, I resorted to hustling to earn money to supplement Mom's meager earnings. I don't mean anything illegal - but anything where someone needed unskilled labor such as mowing lawns, cleaning out garages, cleaning trash cans, washing cars, washing windows, etc. Anything to make a buck, and I turned it over to Mom. Fortunately, Mom made me put half into a passbook savings account at a savings & loan and I got to see compounding in action.
I went on to earn scholarships to help pay for college and grad school, and worked while in school. Ultimately, I went on to be named inventor on several patents and rose to manage technical innovation at some name-brand Fortune 100 companies -- all the while partially supporting my aging mom & brother (my sister died less than a year after my father). Mom's now 90 years old, my brother is 65; I bought them a house to live in in a 55+ age restricted community 10 minutes from my home, and partially support them. Mom has a small County pension. When she passes, I'll fully support my brother; while he's high functioning autistic, he's never been employable.
We have a wonderful daughter who suffers from from severe medical problems that interfere with academics. I still remember the Chief of Pediatric Cardiology at Stanford Children's Hospital telling my wife & me, "I promise you we will do everything in our power to prevent your daughter from dying today." Despite her medical issues, she went on to graduate from an Ivy League school (and no, she's not a legacy).
I was financially successful -- successful enough that I could semi-retire at 40 and fully retire before 50. There are academic scholarships and faculty chairs that I've funded. Overall, I think I've added quite a bit of value to society. Yes, I'm financially secure. I do consider myself fortunate, but not lucky.
And I would trade every penny of financial success if it would bring back my dad.
********
Now, I contrast my story with that of one of my cousins. She's my youngest cousin, so she's several years younger than me. She grew up on the "right side of the railroad tracks," as her father was a state superior court judge and solidly middle-class, perhaps bordering on upper-middle class. My cousin & her husband have 3 girls. As a family, they go to Dodger baseball games all the time, go on family camping trips and vacations, belong to a country club & golf quite a bit, etc. Their cars are never more than 3 years old, including an RV, and always seem to have the newest iPhones. And off road motorcycles.
As a family, they have generated some wonderful memories together. But they have no meaningful college savings for their kids. They have some retirement savings, but not much. It was always more important for them to spend their money on things that have been important to them rather than save for the future.
****
We all make choices, and those choices shape our lives.
Last edited by SportyandMisty; 12-27-2017 at 09:17 AM..
Having worked like a dog all my life and having lived cheap and passed on vacations and other unnecessary expenses, this topic means something to me. I too have finally reached a point where I am feeling secure in retirement. That did not happen until recently. Even the first couple of years of my retirement where none too certain. I retired a couple of years after the 2008 crisis. To help us get by, we sold the house, traveled and lived in an RV for 2 years. Yup, finally feeling financially secure means a lot to me.
If it means nothing to you, why not just skip over this thread? You don't have to post anything least of all your financial position.
Sure, being financially secure is important to everyone. I still don't see the purpose of this thread. Is there a question posed? Or are we to celebrate ourselves?
Of course we all make choices and our choices certainly have a significant impact on our future. No doubt.
But anyone who truly believes where they are is 100% based on their own hard work and good choices is fooling themselves and, to some extent, arrogant.
We have all experienced both good and bad "fortune" (or luck) and where we are in life has certainly been impacted by things beyond our control. We (or someone close to us) may have suffered ill health. Mention has been made of a spouses cancer treatment. Not everyone survives - so, to some extent, there was some good fortune involved. Some have mentioned college - perhaps their "good fortune" was being brought up in a family that valued education - not every family does. Some people have children - and some are unable, or have children who, by no fault of their own, are born with expensive needs that are not always covered by insurance (or were not at the time - remember it's only been recently that pre-existing conditions had to be covered). Some people have been "fortunate" that their companies were honest and stayed in business allowing them a solid and consistent career.
There are many, many things that can impact one's finances. Most are our own habits and choices but for anyone to think that they are so special, to have not benefited from any luck or good fortune along the way....SMH.
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Never wanted to be, still hate it with the heat of 10 burning suns. It was forced upon me when I was widowed at a young age with 3 young kids. Now I pretty much knew the basics, did take a few economic classes but I grew up in a "pension" age, was no such thing as IRA and 401K's when I started my working career. 