Should Stocks Be in Your Retirement Plan?
May 6, 2010 by Mr. GoTo
Filed under Investing for Retirement
On May 6, 2010, the stock market taught us that a computer glitch a/k/a “trading error” can decimate a retirement nest egg populated with stocks. (Source) Speaking as a baby boomer in the final years of our accumulation phase, I’m sick of it. You probably are as well.
If you think I’m being facetious about the crazed computer trading comment, consider this from the cited article:
High-speed trading, which uses sophisticated computer algorithms based on specific scenarios to automate transactions at speeds in the millionths of a second, now accounts for about 60 percent of U.S. equity volume.
That’s right, fellow boomers. 60% of the market is run by computers. I fully embrace computer technology but not when it has such strong control over my net worth.
Ironically, on the same day that the market short-circuited, one of my favorite investing contrarians – Zvi Bodie – was speaking at a meeting of financial professionals in Canada. This was his comment regarding traditional “buy and hold” investing in equities:
Bodie says equity mutual funds and target date funds are not safe, though they rely on the notion that there’s a free lunch investing in stocks for the long run. “There isn’t.”
He noted a Schwab asset allocation guideline that even retirees 65 and beyond should hold at least 50% stocks. “I’ve had at least three debates with Jeremy Siegel and he’s the worst offender in my view,” Bodie said. “It’s interesting he doesn’t disagree with me. All he’s saying is there’s a positive risk premium on equities so if you take the risk, there is a reasonable chance you’ll be rewarded. He’s not saying the equity risk goes away if you have a long time horizon.”
(Source: Our faith in stocks is misplaced.) For more about Professor Bodie’s ideas on retirement investing, read the information I’ve assembled at Failsafe Retirement.
I am more determined than ever to invest for a secure retirement income. I’m curious about some of the new retirement income products that are in the pipeline, including a Pimco product that uses TIPS bond ladders with a longevity insurance policy that kicks in at age 85.
What about you? Did the events of May 6, 2010 influence your retirement planning in any way? Are you changing your allocation of equities in your retirement investments?
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My problem with income and investment “products” is they are sold by companies that are high risk themselves. Many insurance companies came within a hair of failure in the 2008 crash. The Pimco’s of the world are subject to failure if they make bad bets. Think Lehman and Bear Sterns.
I’m also concerned about the future growth of business in the United States. The next hundred years are not likely to be like the last hundred years. Don’t think we are going to see many double digit returns from intrinsic growth. Instead the ability to manipulate markets will produce the big returns. China and other rapidly developing countries are where wealth will be created, but their financial markets are very risky. I can’t program trade and the risk-reward profile of other markets is not for me.
I put the majority of my money in rental properties. A number of them are free and clear now and the plan is to pay them off. Tax shelter is good and the possibility of appreciation is a nice sweetener.