Thursday, November 13, 2008

Retirment savings wiped out? No sympathy from me

Had a quick chat with a teammate this morning at the boat house. He was talking about pulling all his investments out of stocks, into more conservative vehicles, like CDs. I didn't tell him directly that I thought this was closing the barn door after the cows had gotten out, but I did tell him I had just put some cash into stocks.

My thinking is that things can't get much worse, and that even if they do, by the time I'm retiring, things will have gotten a lot better. Look at every crash in the last 30 years. 1980, 1987, 1990, 1998, 2001, 2002. Generally, things got about as bad as they were going to get right away, then recovered, sometimes quickly, sometimes slowly. I could be wrong, but I can't imagine the DJIA dropping far below 8000. Granted, it may take a while for things to start moving up, but I'm happy to get the chance to buy in at 1997 levels. It's like I get to take my mid career earning power, and invest at prices only available after I first graduated. Score.

Of course, I'm hedging a bit, and will wait another 6 months before moving any more into the market. Just prudent dollar cost averaging. I think this is a buying opportunity, not a time to run and hide.

This friend said something about his concern for 50 and 60 somethings who'd seen their retirement savings get crushed in this market downturn. My response was that if people a few years from retirement had most of their money in risky instruments, they deserve what they got. The most basic personal finance texts on Earth all tell you that risk is fine for long term investments, and short term things belong in safe vehicles. As you get close to retirement, you're supposed to move from risky stocks to safer stocks to bonds and CDs. You can choose not to do this, of course, and try to get a higher return. You just risk the losses. And call me a heartless capitalist, but I think you have to accept the losses with the gains when you take a financial risk.

Second, this is why God made limit orders. If you're going to own equities outright, put some limit orders to sell if the values slide. You don't have to watch it every day, and if the market melts, you get out. If you're a big enough grown up to buy stocks, you're big enough to manage them. Or buy a damn mutual fund and shut up.

Third, if you're 50, you're fine. You just have to wait to 60 to retire. Again, if you were planning on retiring this year, why the hell were you in stocks? If you were planning to retire at 60, don't worry. 10 years is a long time. Things will come back.

My friend, being of European heritage, thought that the government ultimately bears responsibility for assuring folks financial stability in old age. I agree in a limited scope: We have Social Security, which is effectively welfare for old people. You can retire and live on it, but not thrive. Old people who can't work and didn't save won't starve. That's the safety net. If you want a high standard of living in retirement, you have to earn that yourself. If you don't save, or invest foolishly, and have nothing, you don't get to cry to the government to buy you a condo in Boca. And if you took on more risk than you ought to have, and lost, don't look to the government for a bailout. That goes for business and citizens alike.

I'm getting a bit fed up, frankly. I don't expect Social Security will exist for me, since the Boomers are going to bankrupt it. So I'm planning to handle my own retirement. I still have not bought a house, because prices were insane. I didn't get a loan I couldn't afford, because I knew I couldn't afford it. I don't have credit card debt, because it's smarter to hit yourself in the face with a shovel than to pay 17% interest on eating out. I really don't like seeing my tax money go to subsidize other people's poor financial decisions. I'll pay for roads and schools and bridges and police and science research and the Space Shuttle. I'm not paying to reward the lemmings who all ran off the cliff together.

Granted, some limited government intervention to keep the economic shift from moving too fast is fine. But folks are going to have to reap what they sow. The free money from Uncle Sam needs to be bundled with enough pain so that only those truly in dire straits will take it. Uncle Sam needs to get his loan shark on.

GM wants money? Uncle Sam becomes the number one debt holder, the equity gets wiped out, the contracts are nullified, the management and directors replaced, and we start over. Same for the financial firms.

You want Uncle Sam to cover your mortgage? For every percentage of your purchase price he covers, he gets twice that in equity. So if you ask for a loan worth 25% of what you paid, Uncle Sam owns 50% of the equity. When you sell, 50% of the appreciation goes to him. Don't like it? Don't take it.

This nation of whiners pisses me off.