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Retirement investing requires optimism
Old 01-30-2013, 07:16 AM   #1
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Retirement investing requires optimism

An interesting article on why having a pessimistic outlook can negatively impact your retirement finances:

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Investing for retirement involves placing your financial assets at risk in an environment of uncertainty. If the future frightens you, your emotions will betray you and reduce your chances of success. Without the firm foundation that optimism provides, you will react to the mood swings of other investors and the latest headlines.

The flight of money from stocks to bonds since the recent financial crisis has been well chronicled in the financial media. Fear and pessimism have caused many investors to remain on the sidelines and miss the 100% rebound in domestic stocks since March of 2009. Missing a doubling of stocks will put a big hurt on anyone's retirement planning.
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Historically, "safe" options such as money-market funds, government bonds and certificates of deposit have yielded after tax returns barely above inflation. Almost everyone needs stock market returns to build a nest egg that will last through retirement. You need courage to put your assets at risk and optimism that your risk-taking will be rewarded.
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We are well educated free people with access to almost unlimited low cost capital. We will continue to discover, invent, start new businesses, cure diseases and eventually solve today's difficult problems.

The choice is yours — optimism and courage or pessimism and fear.
Retirement investing requires optimism

Note how the author conveniently ignores the asteroid headed our way...
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Old 01-30-2013, 07:42 AM   #2
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But if we are all optimistic about the future what will we have to worry about? Imagine, all those people who's livelihood depends on making others feel afraid. What will they do? Scary thought...
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Old 01-30-2013, 07:55 AM   #3
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The last century has contained most of the history altering events that we are likely to experience in the future — war and peace, a growing economy, a declining economy, bull and bear markets, inflation and deflation, high and low interest rates and countless other frightening events that now reside on the timeline of things long forgotten. By reading today's headlines instead of history, you're left with the impression that we live in unusual times but each decade is unusual in its own unique way.
Past performance is no guarantee of future results
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Old 01-30-2013, 08:04 AM   #4
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Past performance is no guarantee of future results
True. There are no guarantees other than death and taxes, but what's the fun in that?
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Old 01-30-2013, 08:45 AM   #5
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It's a surprisingly insightful article for it's brevity, thanks. I could write 10 times as much and say far less.

It will be interesting to see if folks can just read it dispassionately instead of through their own "lenses." I also liked:
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The media's 24/7 barrage of bad tidings and other distractions (such as the fiscal cliff countdown clock that appeared on this website) serve to frighten rather than educate. The best way I have found to develop optimism is to study history. It will help you put today's headlines and countdown clocks into historical perspective.

The last century has contained most of the history altering events that we are likely to experience in the future — war and peace, a growing economy, a declining economy, bull and bear markets, inflation and deflation, high and low interest rates and countless other frightening events that now reside on the timeline of things long forgotten. By reading today's headlines instead of history, you're left with the impression that we live in unusual times but each decade is unusual in its own unique way.

I am bored by those who assert that the dark future they envision in their fevered dreams is a certainty. Those bearded, white-robed seers holding "The End Is Near" signs have gone digital and the Internet gives them a global microphone. It requires no special insight to complain about the budget deficit, a dysfunctional Congress, the national debt, high unemployment, slow economic growth, etc. ad nauseam.
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Old 01-30-2013, 11:08 AM   #6
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I pretty much turn off the press (especially CNN and the financial press) because I know their main goal is to trap eyeballs, and to do that they try to keep their audience frozen like deer in headlights.

A common refrain from an anchor (from Bloomberg radio): "Should(n't) we be worried that/about.....?" said in a breathless tone - I think the interviewer repeated this question at least 5 times during the episode.

It does no good to just worry. You have to stop and either decide on a course of action or take some action. Then you can set the worry aside. If you decide to do nothing - there is no point in worrying. If you decide to research the issue in 3 months, then there is no point in worrying about it until you reach that three months. In many cases, an issue is entirely out of our hands, or not worth the extreme effort that would be required to make a difference - so there is no point in worrying about those things either. A perpetual state of worry accomplishes nothing, yet harms our health.

But I believe that the news media, in general, just wants us to stay worried all the time because they think that will keep their audience captive.
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Old 01-30-2013, 11:22 AM   #7
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Very nice article. I can't figure out how to cut a snippet out of the article and past it in here with my phone but there is a line in the article that says people need to educate themselves on how to invest for their future. To me this is key. Reading a few books on investing has given me a better understanding of how the market has worked over time and that gives me power over my fear. I think most people invest because they are told it is the best way to prepare for the future. They go to the company open enrollment meeting and get an outline of how and what to invest in pick a plan and go with. They don't really understand why or how it works and at the first sign of trouble they bail out. 401K plans are a great tool but like many other tools they are dangerous if you don't know how to use and maintain them properly.

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Old 01-30-2013, 11:28 AM   #8
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Originally Posted by audreyh1 View Post
But I believe that the news media, in general, just wants us to stay worried all the time because they think that will keep their audience captive.
+1

Audrey, you're right on target!
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Old 01-30-2013, 11:39 AM   #9
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Originally Posted by audreyh1 View Post
But I believe that the news media, in general, just wants us to stay worried all the time because they think that will keep their audience captive.
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Originally Posted by youbet
+1

Audrey, you're right on target!
It's all about ratings to sell advertising of course, serving any other purpose is a distant second.

Chicken-or-the-egg maybe but
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Is the media negative? Media studies show that bad news far outweighs good news by as much as seventeen negative news reports for every one good news report. Why? Humans seek out news of dramatic, negative events.

Many studies have shown that we care more about the threat of bad things than we do about the prospect of good things. Our negative brain tripwires are far more sensitive than our positive triggers. We tend to get more fearful than happy.

So from evolutionary and neuro-scientific and probability perspectives, we are hard-wired to look for the dramatic and negative, and when we find it, we share it.
However, more encouraging (I hope)?
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Is there any good news in all this? According to positive psychologists we can change our habits, and we can focus on the glass being half-full. When we acquire new habits, our brains acquire "mirror neurons" and develop a positive perspective that can spread to other people like a virus. Giving us the bad news, so that our brains are hard-wired into a negative state, will just reinforce the current negative economic climate.
http://www.psychologytoday.com/blog/wired-success/201012/why-we-love-bad-news just one of many articles online.
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Old 01-30-2013, 11:44 AM   #10
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I consider myself a pessimist, yet financially I have not done too bad compared to some of my friends who flocked to gold in the late 80s.

I think it's because I am not a doomer, and still try to find slivers of hope and invest in those areas.
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Old 01-30-2013, 12:24 PM   #11
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An important thing an investor must avoid is to extrapolate his particular situation to the world at large. Here's an example.

In the 2000-2002 tech bust, our business was hurt badly. Looking around, I saw huge tech and communication companies like Nortel, Cisco imploding, let alone a little business like ours. Yet, I also saw that there were sectors shunned earlier by investors now doing well. Of course, people needed less silicon chips, but still ate potato chips.

From the top of 2000 to the bottom in 2002, my portfolio shrank to 50% of its high. And this happened while we toiled for no pay trying to keep the business alive. My personal situation was pretty gloomy.

I sold most of my tech holdings and reinvested in other sectors like material and energy. I got back to my 2000 high at around 2005 in late 2004, and even got the confidence and money to buy a 2nd home in 2005.

So, I can relate to people in beaten down industries like auto and housing who would feel pretty bad, and cast a gloomy outlook over the whole world. Nope! Just because you are in a destitute personal situation does not mean the rest of the world isn't out partying.
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Old 01-30-2013, 07:07 PM   #12
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Originally Posted by REWahoo View Post
An interesting article on why having a pessimistic outlook can negatively impact your retirement finances:

Retirement investing requires optimism

Note how the author conveniently ignores the asteroid headed our way...
Where is the "like" button. (for the article - the asteroid heading our way is a given...)
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Old 01-30-2013, 09:47 PM   #13
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IMHO- It's all about risk management. Early in life you generally need to be aggressive to have a chance to reach your financial goals. If you are lucky enough to hold a well-paying j#b & LBYM, FIRE becomes more about preservation of capital. This requires less optimism, although some might argue it is the optimism that we won't go into another deep depression
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Old 01-30-2013, 09:58 PM   #14
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There's only one part of the article I disagree with, and that is,

"Accumulating sufficient assets to fund your golden years is a difficult task — one that is beyond the skill of most people."

I don't think it takes a lot of skill to save, and learn the basics of investing for retirement, but it does take a strong desire, maintained over a prolonged period. Perhaps many people just don't have the desire to provide for their futures?
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Old 01-30-2013, 10:19 PM   #15
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There's only one part of the article I disagree with, and that is,

"Accumulating sufficient assets to fund your golden years is a difficult task — one that is beyond the skill of most people."

I don't think it takes a lot of skill to save, and learn the basics of investing for retirement, but it does take a strong desire, maintained over a prolonged period. Perhaps many people just don't have the desire to provide for their futures?
+1
how much skill does it take to set aside money in a Target Date retirement fund? I agree it is lack of motivation, not of skill, that prevent many people from saving for retirement.
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Old 01-30-2013, 10:59 PM   #16
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well maybe the skill of self control
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Old 01-31-2013, 11:39 AM   #17
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It is more difficult to remain positive than to embrace anxieties. At least it is for me. However, the significant effort required to be positive is worth it I believe. Doesn't everyone admire the positive people? I sure do. It works in life for relationships, health, and most likely investing. Wish it came naturally but until then I'll keep working at it.
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Old 01-31-2013, 01:54 PM   #18
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I don't think of myself as particularly optimistic in general, and I'm absolutely certain that I wasn't at all optimistic in the fall of 2008. Yet I ended up making some very good investment decisions back then by making large stock purchases during a period of precipitous market declines. My attitude back then was more one of dogged determination than optimism. Working towards FI is worth doing, and it's still worth doing when the outcome is in doubt.

I read the Lord of the Rings trilogy as a teenage and remember it only vaguely. But one quote from it stuck in my mind, and I think it sums up the attitude of a good investor very nicely: Both optimistics and pessimists can be good at investing, as long as they're willing to stay the course regardless of the mood they're in at any given point in time.

Quote:
Tolkien: With hope or without hope we will follow the trail of our enemies.
Quote:
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Old 01-31-2013, 05:16 PM   #19
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There's only one part of the article I disagree with, and that is,

"Accumulating sufficient assets to fund your golden years is a difficult task — one that is beyond the skill of most people."

I don't think it takes a lot of skill to save, and learn the basics of investing for retirement, but it does take a strong desire, maintained over a prolonged period. Perhaps many people just don't have the desire to provide for their futures?
I have a different view, and think you're selling yourself short.

I think that a lot of the knowledge and experience you and other members of this forum possess has been obtained through extensive study and application. I also think that the community on this forum is on the far right side of the cognitive bell curve. Taking this for granted may tend to make us over estimate the ability of others. I'm not trying to be elitist and, hope I don't sound that way. But, my experiences with friends and family outside this forum, along with what I've learned about E-R.org members during the past year (both admittedly anecdotal) simply lead me to this conclusion. I also think that, as a group, we are much better at exercising the self control (LBYM, delayed gratification, sticking with the AA, etc) mentioned below.

Together, those two things are pretty powerful.

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well maybe the skill of self control
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Old 01-31-2013, 06:43 PM   #20
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I have a different view, and think you're selling yourself short.

I think that a lot of the knowledge and experience you and other members of this forum possess has been obtained through extensive study and application. I also think that the community on this forum is on the far right side of the cognitive bell curve. Taking this for granted may tend to make us over estimate the ability of others. I'm not trying to be elitist and, hope I don't sound that way. But, my experiences with friends and family outside this forum, along with what I've learned about E-R.org members during the past year (both admittedly anecdotal) simply lead me to this conclusion. I also think that, as a group, we are much better at exercising the self control (LBYM, delayed gratification, sticking with the AA, etc) mentioned below.

Together, those two things are pretty powerful.
Now I think about it, I realize that the author was correct; not many do have the necessary skills but for many, it is not because they are not capable of learning and developing those skills; it has more to do with a lack of interest/motivation.

I take my words back. Now, there are those who have the lack of desire as well as the lack of ability to develop the skills, if they even wanted to. There is little we can do about those people.
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