Scott Burns: The (Rising) Hazards Of Saving

Ted

FYI: As if saving money wasn’t difficult enough, it’s now looking hazardous to boot.
Reports from the Investment Company Institute show that we are selling stocks and buying bonds. We’re also moving away from money market mutual funds. This is a big deal.
Money market mutual funds are a good example of the problem. This virtually risk-free investment medium had a net outflow of $65 billion in the first seven months of 2015. In the comparable period this year the outflow continued: $47 billion.
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/the-(rising)-hazards-of-saving

Edmond

The link doesn't link...

heezsafe

Interesting.

catch22

Tricky little sucker, eh? Not being a master of https coding with this..........but this linkage will get one to the page and "read more".

https://assetbuilder.com/knowledge-center/articles/

heezsafe

yes, clever boys.... click on the link, after finding the article cited in a Yahoo or Google search, and it goes to the article; however, however, try a copy & paste of the link from the search list and the same thing happens--- the link also gets truncated by the assetbuilder server and you get a Whoops!

MJG

Hi Guys,

Catch22, thanks for the Link that gains access to the Burns article. It is a very disheartening report. It suggests that returns from the standard array of investment options that individual investors can access are not promising.

Near term prospects seem bleak at this juncture and additionally, we have not been patient, prudent investors historically. The data demonstrate that we typically make changes with poor timing. Here is a Link that documents our miserable performance record:

http://www.nber.org/digest/feb06/w11526.html

Given our poor timing history, the Burns article might be interpreted as a signal that things might be ripe for a market change. I recognize that this reverse psychology can be very dangerous stuff. But over longer timeframes, the equity markets have delivered solid returns that were in excess of inflation. So I'm not ready to abandon the US equity markets.

Here is a Link that summarizes US equity returns over 10 year and longer periods:

https://www.thebalance.com/rolling-index-returns-1973-mid-2009-4061795

Although it's not perfect, the odds are attractive. Over a 15 .year period since the 1970s, returns have been 100% positive. I am and remain an optimist.

Best Wishes.

msf

Try this link
(MFO seems to think that a link ends when it sees a paren)

catch22

@msf
Agree, the ( )'s were at least part of the problem. An unusual one, for sure.

msf

I believe the paren was the whole problem. Similar to what some email clients do, the MFO web server automatically interprets something beginning with http://something as a URL when you post it. That's why you don't have to use the "link" icon (as you need to, e.g. on M*'s board).

If you take a close look at Ted's original link, you'll see that it is blue up to the open paren (indicating a link), and then it is black (not part of the URL). This is confirmed by looking at the HTML source for this page.

If you want to embed parens in a URL and have it interpreted correctly, you can use the HTML escapes: ( and )

Here's Ted's link written that way:
https://assetbuilder.com/knowledge-center/articles/the-(rising)-hazards-of-saving

Ted

@msf: Thanks, for the correction, this is not the first time I've had trouble with Scott's Website.
Regards,
Ted

hank

MJG said:

Although it's not perfect, the odds are attractive. Over a 15 year period since the 1970s, returns have been 100% positive. I am and remain an optimist.

Hi MJG, I know you've done so before, but would you mind sharing your age? I sense from another thread you are taking only your minimum legally required RMD and pretty much getting by on SS and pension. I think this is all really meaningful and thought provoking because one's needs during retirement and his/her planning and expectations for the final decade or two of existence affect how we invest.

There are different schools of thought. Sorry I can't provide a link, but a few weeks ago Barrons interviewed a group of advisors who specialize in age-related planning. One was adamant that we spend/withdraw more earlier on while we still have the good health to enjoy travel and other expensive persuits. Hits home with me at 71. I can still have a hoot swimming in the surf off Marathon - and the flight down from northern Michigan (with 1-2 connections along the way) doesn't bother me. I doubt I'll be in such swimmingly good shape at 90. This is of course an over-simplification. Many other things to consider.

As I said earlier, this affects how we invest. I suspect someone like yourself, taking as little as possible from accumulated savings, can afford to (and should) take a more aggressive stance and have, perhaps, a somewhat longer time horizon.

MJG

Hi Hank,

My wife and I don't mind sharing our ages. I am 82 and my wife is 78 years old.

We are in reasonably good health, and my wife keeps me on a straight road from a health perspective. Your question intrigued me so I visited an age survival website and completed the requisite data for both of us. The estimate was that we would survive well into our 90s age.

We are both slowing down and our endurance is eroding. I certainly agree with a strategy that advocates traveling early and frequently. Some of the places we visited a decade ago are likely not accessible to us today.

Financially we are in a very comfortable position. We have become much more generous in the last few years to our immediate family, to more distant relatives, and to charities. My wife handles those details and is an equal partner in our investment decisions.

Over the last few years, our portfolio has become more aggressive as measured by more heavily weighted equity percentages. We feel we can be more generous with nearly zero risk to ourselves. But generalities are dangerous. Each individual must decide what's best for his own special and unique set of circumstances.

Best Wishes for a long and prosperous life.

hank

Thanks so much. A 15-year wait for a full stock market recovery would put your equity position back to around break-even at age 97 - and your wife at 93. (I'll set aside my serious reservations about the future of bonds.)

That's not a prophesy. No one knows what the future holds. However, 15 years would not be an unrealistic wait after a market meltdown, were it to occur. I sense we've all been spoiled by the rapid recovery from '07-'09. History has not always been so kind.

Nice to hear you have been sharing in your good fortune. I'm sure that brings you and yours much joy.

Regards

msf

The typical spending pattern in retirement (remembering that typical, i.e. "average" may mean mode or median) is that one spends more in early retirement than later. In part, that's simply because as one reaches (very) old age, there's less one can do so expenses tail off. In part, that's because people follow the advice to do more while they can (so early retirement expenses go up deliberately).

Unless one is comfortably well off, one must deal with the risk of expenses going up (rather than down) in late retirement due to health issues. One way of doing that is by underspending in early retirement, just in case.

Another way is with insurance. On average (yes, there's that word again), one loses money with insurance. That is, arithmetically averaged across lots of policies, insurance companies make money. But for that cost, risk is shifted. Instead of each retiree having to keep a large reserve, a retiree can set aside a smaller amount for the insurance. This frees the retiree to spend more in early retirement, or to invest more aggressively (more equities), especially as one advances in age.

Social Security is one form of "insurance" that facilitates this. The private sector analog is an annuity. A recent innovation (and one of the few in the industry that seem valuable) is a deferred income annuity ("longevity insurance").

If you are comfortable enough financially to absorb the risks yourself - market risks and health/longevity risks, then you can self-insure, and keep the insurance company profits (again, on average). It's another advantage of those in better financial positions. They can save the expense of insurance (or of underspending).

Regarding the market not having a 15 year losing period - that used to be 10 years, until the 10 year "rule" was broken. Betting on the market is fine if you can afford the risk of recovery happening after you're gone. You can afford that risk if you're insured or because you have enough assets that an extended downturn won't affect your lifestyle. Otherwise, if you bet on the market and lose, you'll have to cut back (or wind up broke).