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?

Chicago CTA Rant – Where are the Busses? Commuting Problems

I have been a commuter in Chicago for about 3 years now. I was initially excited to abandon my car in it’s parking space during the week and walk to the EL train and then to work every day. I have saved a bucket-load of cash not paying for gas or parking downtown since I have worked in that area. I was able to get to work in 1 hour from door to door, and it would be faster if I caught the CTA Train right when I got to the station. It was never more than a 10 minute wait for a green line though.

All these things changed recently when I moved in with my Fiance in Warrenville. (I had been living in Oak Park for the last 7 years) Now I am only tied to downtown Chicago by the METRA trains. Which is very frustrating since the BNSF only comes in to Union Station which is all the F way over west of the loop and not walkable to Michigan Avenue. 

This means you have to fill that gap with more public transport since cabs are too expensive to take every day. Your choices are the CTA elevated Trains which aren’t really by Union Station or Michigan Avenue either or the CTA Buses. Everyone said the Buses were the way to go. And for all the ranting about Metra, the CTA Buses have ended up being far more problematic than the Train. (although the train has been so packed the last 2 days that people have been standing in the isles in all the cars)

This morning for example it was a 1/2 hour wait for a 121 bus by Union Station. WTF? They are supposed to run every 12-15 minutes per the CTA Site. Last night was no better. I caught the 151 bus to Union Station for a change (most days I wait a 1/2 hour for that at 6 pm also) and then there was no Train until 6:50 pm. I spent a 1/2 hour sitting in the train station doing nothing. Where was the 6:20 BNSF?

That is the first time a METRA train has been missing but the CTA buses are there at about a 50% rate . I can walk to the train station in a 1/2 hour, but if I can get a bus it only takes 15 minutes (even stopping on every block). But if I knew there would not be a bus for a 1/2 hour I would just F-ing walk.

I get to start working from home on Fridays this week. I won’t miss the 1.5-2 hour commute each way.

How have your experiences been with Chicago CTA & METRA commuting?