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As predictable as snowfall...
Old 08-25-2015, 05:38 AM   #1
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As predictable as snowfall...

I'm 61 and as close to being retired as you can get - what happened yesterday in the stock market was as predictable as snowfall this winter here in Pennsylvania. It is coming, we don't know how much or exactly when but it happens every winter. If we accept that there is a number of people that make money on volatility called traders and a news media that loves a good story we understand the hype. "Please Joe expert tell us what is the impact to the average person...well they took an 8% hit to there 401k...it's terrible" thanks Joe for your brilliant insight. but there's a problem a sizable portion of our populace doesn't have much or any thing at all in the stock market

The average balance in all 50 million 401(k) accounts is just over $60,000, according to the Employee Benefit Research Institute. Even people within 10 years of retirement have saved an average of only $78,000, and more than a third of them have less than $25,000. More than half of U.S. workers have no retirement plan at all.

Your probably saying yeah but 8% on what ever you have is significant. True but just like Spring eventually it will get warm again. I can't tell you exactly when but the daffodils will let you know.

I invest for income I buy (and almost never sell) dividend producing ETFs, mutual funds and individual stocks. My theorem is that dividend income is generally less volatile than the market in entirety. Portfolio values while reassuring are really not that important if SS and your dividend income will carry you. We are debt free and live frugally.

Factors that contribute to the panic... Debt! People who carry credit card balances in the U.S. Have an average balance of $15k (that's $3,000 in interest each year). I mention that because who is more likely to panic the debt free guy/gal with 6 months in emergency funds or the the guy who is drowning in consumer debt? Truism: reduce your expenses and you reduce stress!

I can't help but think we Americans need to focus on long term thinking and being fiscally strong. You get there by exercising fiscal discipline in all things... Sadly I don't see much of it but, when I do I feel - hey there is hope and we are not alone.

Last thought, if you saved that $3k year/ $270 a month in credit card interest for 30 years and put it in a mutual fund...well after 30 years you'd have one heck of a pile...consumer debt is the enemy.


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Old 08-25-2015, 07:06 AM   #2
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Originally Posted by rayinpenn View Post

Last thought, if you saved that $3k year/ $270 a month in credit card interest for 30 years and put it in a mutual fund...well after 30 years you'd have one heck of a pile...consumer debt is the enemy.


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If you assume a mutual fund return of 7% then the total is $317,537.
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Old 08-25-2015, 08:36 AM   #3
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Originally Posted by rayinpenn View Post
I'm 61 and as close to being retired as you can get - what happened yesterday in the stock market was as predictable as snowfall this winter here in Pennsylvania. It is coming, we don't know how much or exactly when but it happens every winter. If we accept that there is a number of people that make money on volatility called traders and a news media that loves a good story we understand the hype. "Please Joe expert tell us what is the impact to the average person...well they took an 8% hit to there 401k...it's terrible" thanks Joe for your brilliant insight. but there's a problem a sizable portion of our populace doesn't have much or any thing at all in the stock market

The average balance in all 50 million 401(k) accounts is just over $60,000, according to the Employee Benefit Research Institute. Even people within 10 years of retirement have saved an average of only $78,000, and more than a third of them have less than $25,000. More than half of U.S. workers have no retirement plan at all.

Your probably saying yeah but 8% on what ever you have is significant. True but just like Spring eventually it will get warm again. I can't tell you exactly when but the daffodils will let you know.

I invest for income I buy (and almost never sell) dividend producing ETFs, mutual funds and individual stocks. My theorem is that dividend income is generally less volatile than the market in entirety. Portfolio values while reassuring are really not that important if SS and your dividend income will carry you. We are debt free and live frugally.

Factors that contribute to the panic... Debt! People who carry credit card balances in the U.S. Have an average balance of $15k (that's $3,000 in interest each year). I mention that because who is more likely to panic the debt free guy/gal with 6 months in emergency funds or the the guy who is drowning in consumer debt? Truism: reduce your expenses and you reduce stress!

I can't help but think we Americans need to focus on long term thinking and being fiscally strong. You get there by exercising fiscal discipline in all things... Sadly I don't see much of it but, when I do I feel - hey there is hope and we are not alone.

Last thought, if you saved that $3k year/ $270 a month in credit card interest for 30 years and put it in a mutual fund...well after 30 years you'd have one heck of a pile...consumer debt is the enemy.


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Good insight you have and pretty much my thoughts exactly. Unfortunately our culture promotes a "got to have it now, keep up with the Joneses and carry that debt over until next month/year mentality." The folks that exercise fiscal discipline will always be in the minority.
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Old 08-25-2015, 09:00 AM   #4
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The folks that exercise fiscal discipline will always be in the minority.
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Old 08-25-2015, 09:07 AM   #5
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....I can't help but think we Americans need to focus on long term thinking and being fiscally strong. You get there by exercising fiscal discipline in all things... Sadly I don't see much of it but, when I do I feel - hey there is hope and we are not alone....
+1 Slow and steady wins the race. It borders on foolish to look at daily, weekly, monthly, YTD or even yearly returns. In my view, 3,5 and 10 year returns are more relevant to buy and hold investors.

Even after the bloodbath, my 3 and 5 year returns are still looking pretty good and far exceed the investment return assumption in my retirement plan.

The last week or so is just a blip.
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Old 08-25-2015, 09:07 AM   #6
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The credit(debt) cycle been berry berry good to me. Let's face it, countries love debt which means they must promote growth by expanding credit which ultimately drives inflation and profits. It's like coasting downriver. Just don't screw it up by grabbing onto something not moving at least as fast as you.
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Old 08-25-2015, 09:37 AM   #7
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Good insight you have and pretty much my thoughts exactly. Unfortunately our culture promotes a "got to have it now, keep up with the Joneses and carry that debt over until next month/year mentality." The folks that exercise fiscal discipline will always be in the minority.
Maybe that's why we're called the 1%.
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Old 08-25-2015, 11:20 AM   #8
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Good post! I agree, completely.

The financial media and financial industry focus on the hare, because the tortoise doesn't sell in the 24 hour news cycle...and, you can't skim huge profits off the tortoise.
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Old 08-25-2015, 12:43 PM   #9
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well said!
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Old 08-25-2015, 01:03 PM   #10
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The average balance in all 50 million 401(k) accounts is just over $60,000, according to the Employee Benefit Research Institute. Even people within 10 years of retirement have saved an average of only $78,000, and more than a third of them have less than $25,000. More than half of U.S. workers have no retirement plan at all.
My wife and I are starting to look forward to a comfortable ER in our mid 50s but we are the only ones in our social groups who seem to even think about the topic or finances beyond how they'll pay for their kids' college. I've made the mistake of mentioning it occasionally and have mostly gotten the same squinty look that I'd get if I had said my salary out loud. Everyone older than us seems to muddle through retirement and die with a roof over their heads, so we here on this forum who want more than the average $60k in savings and are willing to plan for it must really be weirdoes.


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Old 08-25-2015, 01:19 PM   #11
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nice post RayinPenn!
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Old 08-25-2015, 01:32 PM   #12
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Unfortunately our culture promotes a "got to have it now, keep up with the Joneses and carry that debt over until next month/year mentality."
I see that a lot with relatives, always with the car payments and cc payments. One SIL, a waitress, balked at paying $250 for a brake job. So she bought a new car, justifying it by saying "Well, the payments were only $15/month more".

There is no hope for people who do things like that.
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Old 08-25-2015, 01:39 PM   #13
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I had a great conversation last week with a guy who wanted me to switch to ATT-Uverse from TWC. He was young, about 23, and he asked how I can retire at a young age. I told him to LBYM and payoff any debt. I also suggested that he upgrade his phone to the second newest version instead of the newest version. He was surprised and felt that the new phone would be better. We talked about how the phone will be priced at a premium for the first users and the older version will fall in price. By buying the older version, he was saving a ton of money. At first he said he might be able to get the new one with a small monthly payment, then the light came on and he realized that someone was making money on the monthly payment, and it wasn't him. The young people are taught to get the newest toys and expect their income to grow forever to pay for them. I never understood that thinking.
If the younger generation wants to live on debt, fine. I will not get caught up in that trap. I just wonder who is funding this debt and who do they think will pay it off?

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Old 08-25-2015, 04:38 PM   #14
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It's not just the younger generation.... it is many in all generations. A close friend who was 50 or so at the time, is generally LBYM, but was all excited about his new truck. He keeps his things nice and the truck he traded was in great condition. He said that he thought it was great that he could get a new truck and his payment stayed the same. I asked him how many payments he had left on his old truck and he told me.

I then asked him how many payments he had on the new truck. You could literally see him thinking about it, a frown came over his face and he "got it".

Since then he has stayed with the new truck and is not at all tempted to trade it in for something newer and shinier. In fact, I recently was talking about trading in my 10 year old truck with 120k miles and he was suggesting that I just put some money into it and continue driving it since it runs pretty well.... so I think we have a convert.
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Old 08-25-2015, 04:43 PM   #15
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A debt culture is one that defines "affordability" in terms of monthly payments.
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Old 08-25-2015, 04:49 PM   #16
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+1 Slow and steady wins the race. It borders on foolish to look at daily, weekly, monthly, YTD or even yearly returns. In my view, 3,5 and 10 year returns are more relevant to buy and hold investors.

Even after the bloodbath, my 3 and 5 year returns are still looking pretty good and far exceed the investment return assumption in my retirement plan.

The last week or so is just a blip.
I look at my portfolio balance daily, and only miss it when I am traveling and do not have Internet access. I do not trade daily, but I want to know what is going on.

When I was diagnosed with a life-threatening serious illness a couple of years ago, I wanted to know exactly my condition, and what chances I had, what treatments were available. In talking to some people, I learned that some would not want to know their prognosis, and trust their doctors to do whatever the latter feel is best. They are afraid to hear the bad news. Different people handle the same situation differently.

Back on financial matters, which is just about money, not one's life, I want to know if I need to make lifestyle changes. To continue to live the same life if one's means have dwindled is simply not how I handle the situation.
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Old 08-25-2015, 09:59 PM   #17
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Well said rayinpenn.

I wish I knew in my twenties what I learned in my forties. Today I take pride in teaching my college age kids about IRAs, and investing for the long-term.

What percentage of your early spending are you looking to cover from portfolio income investments? I love the concept, track it quartely, but have no where near enough to be comfortable.
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As predictable as snowfall...
Old 08-26-2015, 05:30 AM   #18
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As predictable as snowfall...

I'm blessed to expect to cover it 100% of my expenses. Then God willing when I hit 65 I'll my surplus will grow because lower health insurance. My health insurance premium will be roughly $1,750 a month the day I retire. Scary my first mortgage payment was around $1,100. (Incidentally my social security will just cover it). It all only works because we are completely debt free and have been for more years then I care to admit (ok decades, yeah we are old).

20 grand a year for health insurance seems steep...when I tell my younger colleagues they say "a month?" Yes $1,750 a month.
"I'll never be able to retire" Sadly for many unless they change their lifestyle to LBYM they are probably right. My guess you need to save 15% of what you earn from day one...employers just aren't that generous in their retirement contributions...


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As predictable as snowfall...
Old 08-26-2015, 06:14 AM   #19
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As predictable as snowfall...

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Originally Posted by pb4uski View Post
It's not just the younger generation.... it is many in all generations. A close friend who was 50 or so at the time, is generally LBYM, but was all excited about his new truck. He keeps his things nice and the truck he traded was in great condition. He said that he thought it was great that he could get a new truck and his payment stayed the same. I asked him how many payments he had left on his old truck and he told me.

I then asked him how many payments he had on the new truck. You could literally see him thinking about it, a frown came over his face and he "got it".

Since then he has stayed with the new truck and is not at all tempted to trade it in for something newer and shinier. In fact, I recently was talking about trading in my 10 year old truck with 120k miles and he was suggesting that I just put some money into it and continue driving it since it runs pretty well.... so I think we have a convert.

Changing someone's life for the better is a double blessing - one for the person helped and one for you.

One of my proudest moments....
Lucille a colleague at work had a hard life...her husband and father of her 2 children left her for a younger woman. He subsequently died of a heart attack.. (Dead guys don't pay child support).

She always invested her 401k in the 'safe fund' then one day we had a chat and I convinced her to take on some risk. She switched to mutual funds and some company stock. Years passed, I didn't think about it. Then I heard she was retiring and I got a note saying "Ray if it wasn't for you I wouldn't have what I have today". You can't buy the feeling I got when I read those words... I still hear them today. There have been other converts.


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Old 08-26-2015, 06:53 AM   #20
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...................
She always invested her 401k in the 'safe fund' then one day we had a chat and I convinced her to take on some risk. She switched to mutual funds and some company stock. ...........
That's great. Others have done the same about the time the market takes a severe drop and been in the dog house, especially when the newbie panics and sells.
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