Can ordinary people manage the risk in the stock market for their retirement?

I am beginning to think there is no way an average American can invest in the market and make any money for their retirement in a 401K. I was reading this morning that 5 and 10 year returns in the portfolios of most mutual funds are negative now when they calculated in the huge losses from recessions in 2001 and 2008 and the beginning of 2009. (Q1 hasn’t been kind) 

As an investor (for my 401K) I look at that and say: yuck! Why would I put my money in something that has no long term value?

My fiance sent me this article saying that now 20 and 30 years are the benchmarks for best overall performance in mutual funds and stocks in the market. Yikes! 20-30 years? Who has that much time before retirement? Who can invest for that long anyway?

When you consider that most people’s salary starts dropping when they reach their 50′s (because employers don’t value old employees and can’t spend time/money updating their skills) you really have 25 years max to work with as far as investments for retirement.

You start your first real paying job with a 401K at age 25 and you may not be fully employable by age 50 although you will likely live to the age of 80 or 90.  There’s your 25 years to save and invest for 30-50 years of retirement.

I also think there is something else going on here affecting the 20-30 year market profit numbers. The US Markets benefited from a long term technology/innovation and growth curve from WWII to the 1980s. Personally, I think that was a one time deal and we will never see that kind of long term prosperity again.

Why? 1. Because we don’t understand enough about technology to innovate on that level again to create that much growth. 2. Because the US has higher paid workers than anywhere else in the world and everything gets manufactured and produced (and serviced) somewhere else. 3. Because we’re too complacent and have too much entitlement as a country of workers. Work creates wealth, not shell games with securities.

That brings up another point: We’ve been playing a shell game with our economy since the 1980′s. De-regulate, re-regulate, stimulus, fix, fund, trade, outsource, sell, leverage, whatever… It’s all a shell game to us worker bees and the internet has been the only significant improvement in technology to create new industries and jobs in the last 20 years. We need more than that to survive and prosper as a nation and a world.

I don’t know about you but I can’t stand to take that much risk with my money. I have some in a 401K but mostly my retirement is locked in a 5 year CD IRA at 5.25% that was a promotion this fall when banks wanted more cash reserves. I changed companies in 2006 and rolled over the old 401K to a bank in 2007 because I knew the 10 year recession was coming soon and I didn’t want to risk timing it.

There will always be people who game the market and come out ahead, but those of us without finance degrees, huge money to invest in undervalued markets or inside scoops will never really profit on the whole. Many of us will get out exactly what we put in and maybe less considering our lack of  investment prowess. So, in that level of risky why not just put it in the bank? Positive 3-5% sounds a lot better than negative 40%.

I hate the inflation argument that says that 3-5% isn’t enough to make money after inflation. Guess what? Inflation has been very low and inflation doesn’t stop when you have negative returns either. I’d rather have some money dependably than none at all when prices are higher. 

You may be asking why I want more innovation and less investment in the market? Doesn’t investment in the market lead to more innovation?

NO. Most of the mutual finds and stocks you can buy that are highly rated are in huge old (one trick pony) risk averse companies that have already peaked and can’t figure out how to do anything new. They sell shares to raise cash and then have old people make decisions like the old days. Venture Capital,  new small businesses and Universities are the place where innovation happens. If I could invest in those, I would. But then again I don’t have millions of dollars and apparently I won’t any time soon.

What are the best proven ways to fund your retirement and create wealth then?

1. Have a side job for extra income you can save (part-time weekends or evenings a few nights a week)

2. Own rental property for extra income (you need to live near it for this to work)

3. Have fewer kids if you’re contemplating having a family (ok we don’t always control this, and we love kids, but nobody is going to debate that they are expensive) 

4. Own a smaller home (smaller mortgage = smaller amount in interest paid (lost) to the bank)

5. Don’t go into debt on credit cards or car loans (hello! 25% interest, MONTHLY! on some cards)

6. Live frugally generally, keep your cars 10 years, don’t buy new clothes every month and don’t buy big ticket items like TVs and Computers every few years. Spread out the expenses over the long term.

7. Share what you have with others. Seriously, knowledge, help with projects, donating time and donating items you no longer need, as well as hand me downs between families help kids and neighbors live better within their means and help the community live better too.

8. Take care of your health. Eat less junk, lower fat, lower salt, lower carbs. Exercise daily. Take vitamins. Don’t work in an industry that has a side effect of cancer. Visit the doctor regularly and if something comes up treat it early, it will cost so much less in the long run. Heath issues start in your 30′s and get more frequent in the 40′s, 50′s and 60′s. Expect to pay more every decade for health costs in your life/budget.

These are all real tactical changes we can make to save more money monthy and yearly that will get better returns than the stock market and help prepare for inflation. What else do you think can help?

HyperMilling How to Save Money on Gas, fuel economy and Drive Cheaper

I was surprised to read this article about driving, gas mileage and hypermilling which is basically the art of conservative driving to save gas in general by getting about 30% better gas mileage. Of course the results differ depending on which car you drive (or truck) but I think this article brings up a lot of good points and strategies. Here are some of the tips they suggest for saving gas (and money) and improving fuel economy for your car when driving around town:

1. Accelerate slowly from stoplights and stop signs. This is a huge gas saver for those of us who live in the suburbs and city. We do a lot of stop and go driving every day and this acceleration from the light sucks down fuel like nothing else. They recommend never pressing the pedal more than 1 inch down. Never floor the car or race away from the light. Just accelerate slowly and you will not waste gas.

2. Use your cruise control on the highway and tollway. I never do this but I will start now. If you want to avoid costly fuel surges in your engine, just set your cruise control for 55 mph or 65 mph depending on the speed limit, set your car in the right lane or middle one if there are super slow cars or trucks in the right lane, and get there at a normal consistent pace. The car is better at managing acceleration with just enough gas at a consistent rate than we are. Humans generally pump the pedal when they drive and constantly throw too much fuel into the engine and are highly inconsistent. Anyway, I like this because it isn’t that different from what we do now and it is more cost efficient.

3. Properly inflating the tires impacts the gas mileage very little and turning off the air conditioning on highway trips doesn’t do much either. (turning off the air conditioning in stop n go traffic can help though)

So take 20 seconds to accelerate away from traffic lights, turn off the air conditioning in stop and go traffic and use the cruise control as much as possible when driving on the highway and your gas mileage should go up and your fuel consumption should go down and you should save some more money.

And then there are always the old fashioned ways to save money on Gas like carpooling and using public transit. Don’t forget those either!

 

Save money around your home

I got this in an email today and wanted to share it with all of you. I think these are some good tips. I previously blogged about saving money and spending wiser a few months ago. It is a topic I am paying more attention to since I am trying to build up some more savings so I can buy a better place in a few years. 

There are many simple ways to save money around your home. And some even help you save the environment, too. Here are some of our favorites:

1. Replacing an old dryer with a new, energy-saving model equipped with a moisture sensor can save you cash, up to 15% per load (after the cost of the dryer. this is only good if you already need one)

2. Use warm or cold water instead of hot when washing your clothes.

3. Turn the thermostat on your water heater down a few degrees, and add some insulation to the tank itself, to help it retain its heat. Insulating the tank costs about $20 and can save you $25 a year.

4. When the fireplace is not in use, don’t forget to close the flue damper. Chimneys are designed to let smoke escape, which means heated or conditioned air escapes, too.

5. Use linear fluorescent and energy-efficient fluorescent compact lamps. They last many times longer than old-fashioned incandescent bulbs and use much less energy.

6. Use solar pathway lights outside your home to eliminate the use of electricity for exterior lights.

7. If purchasing a new refrigerator, consider one with the freezer on the top—they’re more efficient

8. Cut out expensive directory assistance calls by using 1-800-free-411. This new service is made possible by thousands of national and local businesses whose brief audio advertisements are played to callers who request businesses in their yellow pages category.

9. Clean inexpensively, and with common household products. For kitchen counters, add four tablespoons of baking soda to one quart of warm water. It cleans and deodorizes. Add equal parts sudsy ammonia and water for another all-around cleaner. Use vinegar (white or apple cider) mixed with water to remove soap and hard-water buildup.

For more information, check out The American Council for an Energy Efficient Economy’s website, and ENERGY STAR’s website.