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?

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WalMart Black Friday Sales & Cyber Monday Deals

walmart, sale, onlineI am starting to get more impressed with WalMart’s ability to change when they are under fire. They have a big article in TIME Magazine this week about revamping their stores and getting the selection tailored to the needs of each community and now I also read that they will be announcing all their sale items online for the Black Friday deals and Cyber Monday sales. (the day after thanksgiving is called black friday because retail stores’ P&L statements go from red to black for the year at that day with the burst of new shopping done. The next monday at work is also a popular day to buy online and it’s called Cyber Monday)

Also new this year is text updates on your cell phone. From mediapost: The site will reveal new items daily. Before the secret items become available, consumers who opt-in by texting the keyword “save” to 96278 (WMart) will get a text message back when Walmart.com reveals the product information on the site. Consumers will find Apple’s iPods and digital cameras from Casio, Cannon and Sony. Microsoft’s Xbox 360, Nintendo’s Wii and Sony’s PlayStation 3, along with an assortment of games, are expected to sell well. There are big-ticket electronics, too, such as LCD TVs from Sony and Samsung and pocket-sized global positioning systems (GPS) from Garmin, Magellan, and tomtom.

This much online presence and change for customers and employees would have been unthinkable a few years ago. It was always the our way or the highway game with them. It is good to see that they will have more flexibility with people’s needs and maybe win some customers back. But now we have to get them to chat with us about that whole import everything from China where there aren’t the same saftey regulations as in the US thing.