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We Stopped 403b Contributions And Have Lost Our Confidence In Stocks

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My wife and I both decided to stop investing in her 403(B), for a variety of reasons and one being our inability to tolerate risk and the flucuations in the market. For us we felt that unless we completely understand what we are investing in and accept the risk and rewards of the investment, then we will not invest, regardless of what out advisor says. To me the stock market is manipulated by the few at the top and regardless of the stats, investing analysis, and investing theories that people throw at you, in the end we needed to sleep comfortably at night.

 

 

 

I really just don't have the time to be as astute in understanding this stuff as one needs to be to make it work to its full potential.

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I am called an investment advisor (fiduciary responsibilities do apply), but really I am just doing applied math from Statistics 101. If this year's returns are shocking, then I highly recommend you go back to the historical data to refine your expectations and put them more in line with what has occurred in the past. Returns for the past year, past 5 years, past 10 years, etc. are within line with how the markets performed in the past.

 

 

This is kind of investment advice that is both common and completely devoid of any real understanding of economics, finance, fiscal policy (domestic and international), and for that matter, history.

 

It does, on the other hand, demonstrate an ability to describe a sine wave (i.e. a wavy line that goes up and down).

 

It is the sum of many forces that makes the stock market "wave" go up and down. These forces vary over time. Forces such as production capacity, intellectual capacity, global demand for US goods, relative lack of international production capacity, availability of hard currency, etc.

 

Instead of looking at the wavy lines of the stock market, the wise investor would be well served to look at the charts relating to:

-CPI (with historical sub-analysis)

-GDP (with historical sub-analysis)

-Consumer debt

-Debt in relation to GDP

-National Debt

-Trade balance

-Foreign production capacity

-Domestic production capacity

-Net inflation

-Govt and social responses to previous recessions/depressions/etc

 

--and a world history book of the 20th century.

 

Suffice it to say that America's overall status in 2009 is grossly different, by any measure, than in any previous "downturn."

 

We should not forget that the fundamental idea of the stock market is to provide a means for individuals to loan money to industry (i.e. invest) so that industry can turn around and use this loan to make more "stuff." After making making money selling this new "stuff" industry then gives a piece of the pie back to the investor who took the risk in loaning his precious money to industry.

 

Unfortunately, the govt has printed a bunch of money that has found its way into the stock market. At the same time printed money from around the globe has jumped in further adding to the bubble. Unfortunately it was just too temping to not "ride the wave." But is the US making proportionately more "stuff?" Of course not. We've been consuming other people's stuff more than our own for decades. We are flipping more burgers and houses, but this does nothing for the guy who made your flat screen TV.

 

Whereas you used to make money in the stock market when your stock turned a profit, now you make money based on what everyone else thinks the stock is worth (or going to be worth). This is speculation. Betting. Betting is not a particularly sound way for someone with limited funds to plan for finances to keep food on the table when they can no longer work.

 

For decades we've been been buying goods from Asia and the Middle East in exchange for IOUs. They can both cut off supply lines of their goods 'and' cash in their IOUs. We have neither the ability to adequately make our own stuff any longer or pay (i.e. give them anything of any value) what we owe them.

 

In summary, don't listen to any "advisor" who shows you a chart with a wavy line on it and tries to convince you that we're near the trough (bottom of the wave) and that you need to jump on for the maximum reward. If you're Warren Buffett and can read the market like the back of your hand, by all means jump in. But remember Buffett can afford to lose everything and still have a lot. Most of us are not in this position.

 

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I am called an investment advisor (fiduciary responsibilities do apply), but really I am just doing applied math from Statistics 101. If this year's returns are shocking, then I highly recommend you go back to the historical data to refine your expectations and put them more in line with what has occurred in the past. Returns for the past year, past 5 years, past 10 years, etc. are within line with how the markets performed in the past.

 

 

This is kind of investment advice that is both common and completely devoid of any real understanding of economics, finance, fiscal policy (domestic and international), and for that matter, history.

 

It does, on the other hand, demonstrate an ability to describe a sine wave (i.e. a wavy line that goes up and down).

 

It is the sum of many forces that makes the stock market "wave" go up and down. These forces vary over time. Forces such as production capacity, intellectual capacity, global demand for US goods, relative lack of international production capacity, availability of hard currency, etc.

 

Instead of looking at the wavy lines of the stock market, the wise investor would be well served to look at the charts relating to:

-CPI (with historical sub-analysis)

-GDP (with historical sub-analysis)

-Consumer debt

-Debt in relation to GDP

-National Debt

-Trade balance

-Foreign production capacity

-Domestic production capacity

-Net inflation

-Govt and social responses to previous recessions/depressions/etc

 

--and a world history book of the 20th century.

 

Suffice it to say that America's overall status in 2009 is grossly different, by any measure, than in any previous "downturn."

 

We should not forget that the fundamental idea of the stock market is to provide a means for individuals to loan money to industry (i.e. invest) so that industry can turn around and use this loan to make more "stuff." After making making money selling this new "stuff" industry then gives a piece of the pie back to the investor who took the risk in loaning his precious money to industry.

 

Unfortunately, the govt has printed a bunch of money that has found its way into the stock market. At the same time printed money from around the globe has jumped in further adding to the bubble. Unfortunately it was just too temping to not "ride the wave." But is the US making proportionately more "stuff?" Of course not. We've been consuming other people's stuff more than our own for decades. We are flipping more burgers and houses, but this does nothing for the guy who made your flat screen TV.

 

Whereas you used to make money in the stock market when your stock turned a profit, now you make money based on what everyone else thinks the stock is worth (or going to be worth). This is speculation. Betting. Betting is not a particularly sound way for someone with limited funds to plan for finances to keep food on the table when they can no longer work.

 

For decades we've been been buying goods from Asia and the Middle East in exchange for IOUs. They can both cut off supply lines of their goods 'and' cash in their IOUs. We have neither the ability to adequately make our own stuff any longer or pay (i.e. give them anything of any value) what we owe them.

 

In summary, don't listen to any "advisor" who shows you a chart with a wavy line on it and tries to convince you that we're near the trough (bottom of the wave) and that you need to jump on for the maximum reward. If you're Warren Buffett and can read the market like the back of your hand, by all means jump in. But remember Buffett can afford to lose everything and still have a lot. Most of us are not in this position.

 

 

Hi TX,

 

Great comments and agree with most of what you say in principle. As a practical and a strategic matter however, I do not agree that there are some variables that will help the investor predict future returns, for example when you say:

"Instead of looking at the wavy lines of the stock market, the wise investor would be well served to look at the charts relating to:

-CPI (with historical sub-analysis)

-GDP (with historical sub-analysis)

-Consumer debt

-Debt in relation to GDP

-National Debt

-Trade balance

-Foreign production capacity

-Domestic production capacity

-Net inflation

-Govt and social responses to previous recessions/depressions/etc

--and a world history book of the 20th century."

 

Of course CPI, GDP and all of the other factors influence stock market returns but we cannot, NOBODY can predict with certainty, when and how much of a factor UNTIL after the fact when it’s too late. Thus this information used to create a portfolio is adding too much risk that will NOT serve the investor well long term. He or she might if they are lucky and many are in the short term, but we are always thinking long term around here. This is a retirement planning forum.

 

Mr. WB was a great investor, but there is no guarantee that his strategy will work just as good or better in the future. I think he would agree too. So I will not "jump in" to anything but a very low cost fund or bond index or low cost managed fund, diversified along the usual asset classes with the most important, that bond allocation equal to one's age. In this way, I don't care what happens to the CPI, GDP, etc. etc. I have a plan that I have stuck to even with this past year devastating returns.

 

I totally agree that one should learn to manager your own portfolio or at the very least learn enough of the basics so that when you do use an adviser, you want that adviser to keep you portfolio diversified.

 

Welcome to the forum,

Steve

PS one of the often but erroneous quotes: "Its different now" is almost always wrong. Stock markets crash and recover and each time people think its different now. It isn't. I have experienced about six different recessions and this one is a biggy, but its not fundamentally different.

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We should not forget that the fundamental idea of the stock market is to provide a means for individuals to loan money to industry (i.e. invest) so that industry can turn around and use this loan to make more "stuff." After making making money selling this new "stuff" industry then gives a piece of the pie back to the investor who took the risk in loaning his precious money to industry.

 

Unfortunately, the govt has printed a bunch of money that has found its way into the stock market. At the same time printed money from around the globe has jumped in further adding to the bubble. Unfortunately it was just too temping to not "ride the wave." But is the US making proportionately more "stuff?" Of course not. We've been consuming other people's stuff more than our own for decades. We are flipping more burgers and houses, but this does nothing for the guy who made your flat screen TV.

 

Whereas you used to make money in the stock market when your stock turned a profit, now you make money based on what everyone else thinks the stock is worth (or going to be worth). This is speculation. Betting. Betting is not a particularly sound way for someone with limited funds to plan for finances to keep food on the table when they can no longer work.

 

For decades we've been been buying goods from Asia and the Middle East in exchange for IOUs. They can both cut off supply lines of their goods 'and' cash in their IOUs. We have neither the ability to adequately make our own stuff any longer or pay (i.e. give them anything of any value) what we owe them.

 

 

 

 

 

These are interesting points, and they make sense on the surface. However, if this premise is true, where can one invest?? If investing in stocks is now simply betting, what can a person invest in that is not based on speculation??

 

Based on the assumption that this is true, what would reasonable to invest in, and what would be reasonable to expect in the way of return and risk?

 

Not arguing - I find myself agreeing with what you have written. Just curious as to where that leaves someone wanting to invest vs. "bet".

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I don't think there is a problem with choosing to or not to invest in stocks, bonds, CD's, or other investment vehicles using betting principles. I use these principles to make most of the decisions in my life (although many times the calculations are more intuitive than explicitly stated).

 

What are the odds that I will die tomorrow, next year, 30 years from now, or 50 years from now? What are the odds that the light bulb will last 400 kilowatt hours? What are the odds that I will not get hit by a car while riding my bicycle?

 

I said that the OP could use Statistics 101 to get a better understanding of how stocks performed in the past. I hope that most people interpret this assertion as meaning that investors do NOT require advanced mathematical skills or knowledge to make informed decisions regarding their portfolios.

 

I make no claim as to exactly what the future holds, except that it will in some way reflect what has happened in the past. If the future is entirely different from the past, then I do not know how to make a decision regarding the future.

 

Interestingly, I believe that you will find most of the posters to this forum hold the same view point. For instance, in the past actively managed domestic stock funds have not consistently even matched the returns of their respective index benchmarks; therefore, many of the regulars on this forum choose to use passive index funds. For another example, in the past stocks have exhibited greater volatility and a wider range of returns on a monthly basis than returns on bonds, or short-term paper, so when they plan for the near future (especially in retirement) they typically shift their portfolio allocation away from stocks.

 

I hope that clarifies my viewpoint a little bit.

 

 

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I don't think there is a problem with choosing to or not to invest in stocks, bonds, CD's, or other investment vehicles using betting principles. I use these principles to make most of the decisions in my life (although many times the calculations are more intuitive than explicitly stated).

 

What are the odds that I will die tomorrow, next year, 30 years from now, or 50 years from now? What are the odds that the light bulb will last 400 kilowatt hours? What are the odds that I will not get hit by a car while riding my bicycle?

 

I said that the OP could use Statistics 101 to get a better understanding of how stocks performed in the past. I hope that most people interpret this assertion as meaning that investors do NOT require advanced mathematical skills or knowledge to make informed decisions regarding their portfolios.

 

I make no claim as to exactly what the future holds, except that it will in some way reflect what has happened in the past. If the future is entirely different from the past, then I do not know how to make a decision regarding the future.

 

Interestingly, I believe that you will find most of the posters to this forum hold the same view point. For instance, in the past actively managed domestic stock funds have not consistently even matched the returns of their respective index benchmarks; therefore, many of the regulars on this forum choose to use passive index funds. For another example, in the past stocks have exhibited greater volatility and a wider range of returns on a monthly basis than returns on bonds, or short-term paper, so when they plan for the near future (especially in retirement) they typically shift their portfolio allocation away from stocks.

 

I hope that clarifies my viewpoint a little bit.

 

 

The future does say something about past human endeavors. There are no corporate boards in the world that does not want growth. This includes every company whether they are private or publically traded. With that in mind, the economy will growth over the long term. You can look in the past for clues, but we don't know exactly what will perform the best. Investing via a broad based stock and bond index assures that the investor's money will grow or decline with the economy because you are invested in the domestic and international enconmies. As Bogle says, the "trend of business fundamentas looks almost like a straight line sloping gently upward..." He goes on to make a contrast to investing vs speculation. With investing, there may be short pull backs, but over 20 years or more, that growth line will go up. Speculation involves only looking a prices and looking at the short term, almost always a losers game, according to Bogle.

Outside of human endeavors to grow that company, we don't know anything else about the future. Its fruitless to guess because 10 out of 10 if you bet the farm on a single guess, you will be wrong in the long term.

 

Steve

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