You were getting close to retirement, and you’d thought you’d saved enough.
And then the market tanked.
So, you decided to stick it out and try to regain what you’d lost. Other changes to your portfolio structure or your investing strategy could wait.
Apparently the Rothschilds, the great banking family, had a saying about when to commit capital: “Buy at the sound of cannon; sell at the sound of violins.”
Although they probably were thinking about political instability, the saying has a contemporary lesson for investors. It’s a reminder that long-term cycles, from peak to trough, are embedded in the capital markets.
For retirement investors, the weak 10-year track record of stocks means it’s time to renew a focus on the economics of retirement. The math is pretty simple, at least at a high level:
Contributions (C) + investment returns (R) = retirement wealth (W)
Federal Reserve data indicate that between January and early May, bank savings deposits rose by almost $170 billion. At the current rate, new deposits for 2009 will exceed those in 2008, which totaled almost $330 billion.
Clearly, you’re voting with your money. While many of you have stayed invested, others have either withdrawn from the market or stopped committing new investment to the market—and, in some circumstances, both.
One of the biggest frustrations for investors is that there is one huge factor no one can control—the returns that the financial markets are going to provide in any given stretch of time.
When we first start investing, we probably ought to receive the serenity prayer* along with the prospectus for whatever fund or security we’re purchasing.
