Tuesday, November 14, 2017

The Stock Market, Our Savings and Congress’ Meddling

In a previous life I worked for a financial firm. The TV next to my desk broadcast a business channel, muted most of the time. A stock ticker rolled across the bottom of the screen. I researched stocks, bonds and mutual funds and helped clients invest for their future, the goal being a poverty-free retirement and fulfillment of their bucket list.

I worked through the buoyant economic environment of the 1990s and the Great Recession and financial crisis of the 21st century. I saw clients panic and take their money out of the market while others perceived opportunity and jumped in. Most investors stayed the course, hoping the market recovered and moved forward, which it eventually did.

Market history is a series of ups and downs, crashes and bull runs. Maddening to most people, especially investors following the market regularly. Perspective is necessary to avoid heart attacks on a dreadful down day and uncontrolled euphoria on an exceptionally elevated day.

Investors in for the long haul usually are rewarded. Those shifting in and out are often disappointed.

A market milestone occurred November 14,1972, when the Dow Jones Industrial Average (DJIA) closed above 1,000 (1,003.16) for the first time. The market plunged soon after, losing almost 40% of its value. But it recovered, dropped additional times, recouped, and the cycle continues…

Forty-five years later the DJIA hovers around 23,500.

Mighty impressive!

Anyone investing a small amount in 1972 and adding to it over the years would own a sizable nest egg today.

Recently out of college and newlyweds in November 1972, hub and I were lucky to have enough extra money for a pizza on the weekend. But life moved quickly. Hub’s discharge from the military followed by a good job meant more money, which immediately got eaten away by runaway inflation.

The economy settled down, but kids assumed the job of depleting our income.

Finally we started investing for our future. IRAs and 401(k)s, introduced into federal law in the 1970s, were promoted and adopted by individuals and corporations during the 1980s.

Statistics tell us most Americans do not invest for the future and upon retirement have limited financial resources. Meanwhile Congress is doing all it can to cut the amount folks can contribute to 401(k)s. Few people save the maximum, but those who can should be allowed that privilege, while the rest of us save as much as possible. The limit on IRAs is much lower than 401(k)s and should be increased. It won’t happen – not in the current Congress.

The government needs as much money as it can muster for the federal budget. One way to get more income (American taxpayers’ hard earned cash) is to redirect IRA/401(k) contributions into Roth IRAs. Roth dollars are taxed immediately while IRA/401(k) dollars are not subject to the greedy hands of Uncle Sam until withdrawn, often decades after the initial investment.

Congress aims to cut Social Security and Medicare, so the least our elected officials can do for senior citizens of the future is to encourage folks to save. America’s seniors will need the money for ordinary expenses like food and medical care.

The proposed tax bill is not finalized. Everyone is fighting for his or her piece of the pie. Tax reform is an excellent idea, but playing with people’s lives is not. Congress should be upfront about the pros and cons of the bill, which apparently throws a few bones to the middle class now but costs them dearly down the road.

I wait anxiously to see what convoluted concoction Congress cooks up next. 

9 comments:

  1. I admit I do not trust anything coming out of the current administration except that my blue state is likely to be punished somehow.

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    1. Unfortunately most blue states will be punished.

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  2. I have invested since I was in my 20s. I did pull out a big chunk of money just before Bush policies crashed the market. I saw it coming with fear and it is the only time I "timed" the market. I avoided losing a lot of money by doing that and am now back in the market and hoping for the best.

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    1. You were smart to see the market crash coming...and the recovery afterwards. A lot of people pulled their money and were too afraid to reinvest.

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  3. I was lucky to spend thirty years in a company that required me to save at least 5% of my salary, and it matched it with 10%. When I retired, I had a good amount to turn into a monthly income to help Social Security to make our bills. I wish more people would think about saving when they're young, but it's not likely to happen. I wouldn't have done it unless I was forced to! :-)

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    1. Your last sentence says it all - most people do not start saving early unless forced. When they realize they must/should save there is not enough time to build a nice nest egg. Especially if the market is not doing well at the time.

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  4. Yeah ... why is it that the amount you can save in an IRA is so much lower than a 401K? Seems unfair, doesn't it? I, for one, am astounded by what's happened in the stock market in last year since DT got elected. I'd love to see an explanation for that one as well.

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    1. I think the market has acted like a truck careening down a mountain - doesn't stop until it reaches bottom. A correction is coming. I fear the current administration will make the situation worse than it otherwise might be. I hope it will not be a full-fledged crash.

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  5. We saved. We had a "live off bond interest " plan.. and did not lose our shirts in the stock market crash/recession of '08. But now our savings are languishing away as those nice bonds got called and matured..I wish I knew a good strategy for investing these days. We're safe and secure but not as much for the extras as I had hoped.. but counting my blessings.We don't have stomach for risk.Where is a retiree, already age 64/65 supposed to invest their nest egg these days????? !

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