Dec 16 2008

Are Retirees Greedy or Stupid?


Carlos Portocarrero

I’ve been hearing this a lot lately: lots and lots of people who are close to retiring are suffering a lot of anxiety because of the recent downturn in the market. I’m no financial expert (although I play one on this blog), but even I know that if you’re even remotely close to retiring, you want to have the majority of your investments in “safe” places like bonds or even cash.

How did this happen? Isn’t this a basic tenet of asset allocation? As you get older you can’t ride out the ups and downs of the stock market as much, so you need to be in safer, more conservative investments.

As far as I can see, there are only two possible answers:

  • Greed: When the stock market does well, people pile into stocks. After the bottom hit in 2002, people stayed away (as they will now) from stocks. But since the housing/market boom that has been going on ever since, more and more people have seen others getting “rich” and decided they too wanted a piece of the action. 
    Which, OK, I understand. But the problem now is that these very same people are shuffling their money into bonds because they feel like they’ve made a big mistake. Well, it’s too late to fix it by switching to bonds. In order to have a decent retirement, now they should stay in stocks and see what kind of bounce that money can make. That’s where the next bullet comes in. 
  • Stupid: Not to be harsh, but being irresponsible (or greedy) with the money you’re relying on once you don’t work anymore is not smart. Sure, I can say this now with the market crashing left and right because I’m 27 years old—I’m not directly impacted by this quite yet. But still, how did people get to this point? That’s why I think those one-stop retirement funds are so great. You buy into it and it will re- balance itself the closer you get to retirement. All automatically. Boring? Sure. Safe and sound? You bet.

The crazy part of all this is that we’ve seen it all before and will see it all again. It’s just another reason why it pays off to know your history. 

If you know someone who is nearing retirement and went through this kind of thing, I’m curious to hear what you think and what you would say to them to a) help them out and b) give them “good” advice.


Dec 13 2008

Good Reads


Carlos Portocarrero
  • Most Likely to Succeed, by Malcolm Gladwell: I first heard about this article on The Simple Dollar, but I wanted to wait until my issue of the magazine showed up in the mail (I guess I’m not ready for a Kindle just yet…). Anyway, this is an engrossing look at education and its “quarterback problem.” Why does this appeal to me? I’m intrigued in how one teacher can be considered “better” than another and because I’m obsessed with the backup-quarterback position in the NFL. That jump from college football to the NFL is one that I love reading about. So if you’re a teacher or you love football (or if you’re both like me), this one is right up your alley. This is really really good stuff.
  • How Are Retirees Losing 50% of Their Portfolio? Check this one out over at GenXFinance. I was also wondering this very same question because I’ve heard a lot of people talking about it. If you’re near retirement, why would you have so much of your portfolio in stocks? Because the person handling your money told you to? Or because you wanted to ride the bullish wave we’ve been on since 2002? Either way, it’s a good topic to ponder a little…or a lot, depending on how old you are.

Dec 3 2008

Chart Therapy


Carlos Portocarrero

The S&P over the past year:

The past 12 years:

The past 58 years:

Any questions?


Jun 10 2008

Saving for Retirement vs Living Your Life


Carlos Portocarrero

Bungee Jumping

When I started reading about retirement accounts like the 401(k) and the Roth IRA for the first time, I immediately became paranoid. Even though I was in my mid twenties, I was already nervous about retirement — it’s just the way I am. I mean, what would happen if I get to age 75 and don’t have enough money to live? Who would take care of me? So right away I made saving for retirement a priority. Ever since, I’ve contributed the full amount to my Roth and I’ve gradually bumped my 401(k) contribution from 4% all the way up to 8% (I’m saving for a down payment so that’s why it isn’t higher).

But that’s a good thing, right? And what does a bungee jumper have to do with retirement? I’ll tell you why: saving for retirement is a smart, responsible thing to do — but you can’t let that get in the way of living your life today. There are things you won’t be able to do when you retire (physically, for the most part) that you may want to do at some point in your life. So guess what? That means doing it now. Things like bungee jumping.

Earlier this year M and I went skiing together. It was a great trip and we had a lot of fun. But when we were planning for it I was a little skeptical. Do we really need to go skiing? Paying for a hotel, the mountain pass, the ski rental, travel expenses, etc. — all that stuff adds up. Money I could’ve easily put into my Roth IRA account. Eventually I came around and I’m really glad I did, but it was a good reminder that, while saving for tomorrow is a good thing, you can’t forget about today. Now we have a picture of the two of us in full ski regalia with snow falling all around us. A picture we can look at when we’re old and wrinkly and reminisce, “Ahh, that was a good trip.”

Frugal Dad recently wrote about stopping to smell the roses, and that’s how I was reminded of this whole retirement vs. living thing. I’ve written about it too — but when you’re so worried about the long-term stuff and trying to be a responsible person, it’s easy to forget. So skiing and bungee jumping are good reminders.

Have you ever not done something because you were more concerned about the future than the present?