Are 25-35 year olds feeling discouraged yet?

[accountingsucks]

I'm in the latter part of the range and this has basically sickened me to equities. I was 100% equities given my 50 - 55 target retirement age, but I have lost some serious money that I worked very hard for in Canadian "blue chip" stocks that really shouldn't lose 50% or more, but they have. I don'[t want to repeat the experience so future contributions are going towards bonds. I personally have capitulated...not so much that I am selling equities, but I don't want to add anytime soon, or perhaps forever. I've been investing since 15 and actually am down over that time. I'm officially done with equities.

I'm reading Buffet's biography and it talks about him buying companies whose shares were trading at 1/3 their cash on hand balances. With the advent of the net and full disclosure easily accessible to anyone, these opportunities will never exist again. Since I don't have a gold plated gov't pension to look forward to, unfortunately I will have to likely work until 65 like the rest of the sorry masses.

 

[soupcxan]

I wouldn't mind the share price decreases so much if the dividends were holding up...my main fund, VEIPX, went from 26 to 13, and you'd think the yield would have increased from 4% to 8%...instead it's about 5%. This fund outperformed the S&P by a bit last year, but has since accelerated its decline so they're about equal.

Until they stop slashing dividends, I'm not buying any more equities. We're only making the minimum investment in the 401k to get the match in a bond fund. The rest of the money is being used to payoff the mortgage early.

We've been wanting to buy a few things, sofa, TV, but with the way things are going who wants to spend $1000 on something that is totally discretionary? I can afford it with cash money, but I'm just not interested. And it presents a real problem for anyone who's trying to sell me stuff.

I looked through the stimulus package and noted that not one of the benefits would apply to us, despite the fact that one of us is a full-time student and the other has a ton of student loan debt. We would not even benefit from the "new car" provision, since we already itemize sales tax. I hope everyone else enjoys their new car/house that we (the responsible ones) helped finance.

 

[Hobo]

I think it is important to remember that very little of actual tangible value has been lost in this economic downturn. For the most part, houses have lost paper value only - the land and structure are still in place. Unless the house is in foreclosure or must be sold in a hurry, hard cash has not been lost.

Stocks have taken a dramatic downturn based on psychological reactions. Yes, the earnings have been modestly lower recently - but not equal to the stock market losses. The dramatic fall in price to earnings ration (PE) are a reflection of people's perception of value (or price). You don't realize a loss (or gain) until the stock (or whatever investment) is sold.

With little lost but the confidence of the investor. With lots of money just sitting in T-bills and other "safe havens", this market could easily turn around and regain ground quickly. Contrast that to something like the fall of Communism in Russia where the whole economic system crashed - and manufacturing industries stopped production. That is real value lost.

If you are young and have your money invested for retirement, then nothing matters until you actually retire. You can't sit on the sidelines and wring your hands (or toast with champagne) with every bull or bear market. Patience is a virtue.

 

[ERD50]

I
I looked through the stimulus package and noted that not one of the benefits would apply to us, despite the fact that one of us is a full-time student

I think the LLC was bumped up to $2,500 from $2,000 max?

That's @ 20% of tuition/fees though, so if those are already no more than $10,000 for you, I guess it would make no diff.

I guess the admin is saying " we only want to give more help people who chose go to expensive schools!".


-ERD50

 

[ziggy29]

Does it help to remember that you're buying shares -- lots of them, and cheap -- rather than a specific dollar investment or return?

I agree. The most important things for someone under 35 are to stay employed and to put as much as they can afford into retirement investing while prices are low.

It's the folks over about 45 or 50, IMO, who should be feeling discouraged. They may have felt very close to retirement 18 months ago but now feel they have quite a few more years to go.

 

[aaronc879]

I agree. The most important things for someone under 35 are to stay employed and to put as much as they can afford into retirement investing while prices are low.

That pretty much sums it up for me. I'm 29 and i'm not really discouraged. If I never looked at my account balances I wouldn't even now there was a recession/depression going on. As long as I don't get layed-off, it's all good.

 

[jblack]

As long as I don't get layed-off, it's all good.

To be honest, aside from the 30-40% dip in our retirement savings this is prob the biggest thing that makes me and DW a bit nervous these days....despite being high peformers at (relatively) good costs for our companies.

The fire-sale on equities is great for us at 32....as long as we can keep buying.

In both our companies I've seen the baby thrown out with the bath water when times get rough.

 

[kumquat]

I know I am. Household conversation:

DW: How much of our income did we save in January (2009)?
DH: $2,000. We're doing a good job staying witin our budget.
DW: How much did our net worth increase?
DH: -$4,000.
DW: Uhh...how do things look for February?
DH: The budget looks great, we will have at least $1,000 left to save.
DW: And the investments?
DH: Uhh...

Try this thread and count your blessings.
http://www.early-retirement.org/for...-join-the-lost-over-a-million-club-40765.html

 

[FUEGO]

At age 29, I'm feeling relatively good. We lost a ton (more than 2x my annual salary). But we are still investing. Our net worth went backwards to what it was 18 months prior. Not the end of the world. DW and I are both top performers at two fairly solid companies, so layoffs look like low probability events in the next 3-6 months. We can live easily on one of our salaries, and 46+ weeks of unemployment would be icing on the cake.

Worst case, one of us gets canned and then we get a nice long partially paid vacation courtesy of ole Uncle. May do some traveling. If it is me, I have a need for a lot of free time for a personal project I am working on this year.

I only do net worth statements and portfolio reviews once per quarter. So the pain is felt, just not too often. I know I am buying stuff much cheaper than it was in recent history (1/2 to 5/6 off). Long term this downturn is great news for the portfolio.

 

[HornedToad10]

At age 26, almost 27, the stock market is depressing but I know long term it is probably great news for me. I upped my contribution to 12% in October and will be keeping it at that.

However, the change to housing prices(Bay Area) makes me ecstactic. So overall, this recession is probably great news for me, as long as I don't get laid off. It just doesn't feel like it as we go through it.

 

[Lusitan]

I'm at the older end of that range, and trying not to dwell on the portfolio losses in my first decade of investing.

I monitor my accounts frequently just to make sure there are no fishy transactions, so I'm in tune with the balance of our FIRE stash on a day-to-day basis. But with my wife, I let her know how badly we're down (we're heavy into stocks in our AA right now given our age) but we don't dwell on the details.

The way I try to look at it is that this mess was bound to happen sooner or later (the days of living off the spoils of WWII are over for good) and I'm glad we got it out of the way sooner rather than later.

I try not to think about how my 401k balance has barely changed in the past 6 months ... despite continuous bi-weekly investments!

 

[CCdaCE]

At 31, starting to wonder if it pays to take 100% equity risk. Seems like it has in the past, but I don't know how long the orgy will last. On the other hand, (see my avatar), the "sound of inevitability", which is inflation, is going to cream any non-equity investments I'd think. Unless you wanna buy TIPS and play cards with a deck of 43 using the gov't inflation magic black box.

So, still dutifully sockin' away 4% to get the match and maxing out my Roth every month, though.

Going to open a Roth for the wife with the tax return. Apparently our withholdings are all screwed up with a couple deductions under our belts. With the stimulus, that's getting to be quite the moving target for me to chase.

Reeking with cynicism.

-CC

 

[kombat]

I have mixed emotions about it, honestly.

I'm 33, my wife is 32. We both graduated university in 1999 and began careers in the high-tech industry.

In many ways, I feel cheated. I've followed all the usual sage advice about "paying ourselves first," saving and investing 20% of our wages, choosing mutual funds instead of trying to pick stocks, buying and holding, dollar-cost-averaging it, the whole bit. All the books I read told me that by sticking to this plan, I could expect 10% return over the long term. I did all the calculations, and figured we'd be on easy street, retiring early at 55 as millionaires.

However, as we all know, reality didn't play out that way. The markets have been on a wild ride since 1999, and currently, the numbers sit at almost exactly the same level they were when we started investing. We haven't achieved a 10% rate of return - we've achieved 0%. When you factor in inflation, we've been losing 2-3% per year. What's going on? We played by the rules, we did all the smart things we were supposed to. Yet retirement seems just as distant as ever. All along, we've been told to trust in the "magic of compound interest," but I haven't seen any compounding at all. My money isn't "working for me," it's just sitting there. Every month, we invest another $3,000, and every month, our net worth stays stationary, or even retreats a little. When exactly is this magical compound interest supposed to start amazing me?

On the other hand, I'm trying to remain optimistic. I'm still hopeful that we can achieve an average of 8% for the next 20 years. If so, we can still achieve our goals. The past decade of 0% returns is bolstering this hope. I guess my reasoning is, "after 10 years of 0% returns, the market must surely be primed to deliver above-average returns, so averaging 8% for the next couple of decades should be a cakewalk!" Wishful thinking? Could be, but it's what keeps me from panicking about dying penniless.

I'm still looking at this and telling myself that we have plenty of time to ride this out, and that this is just an opportunity to go back in time and buy all those investments we couldn't afford back in 1999, but at 1999 prices. It's (hopefully) the deal of a century. I'm hopeful that 20 years from now, when we look back in history, we'll realize that my generation was in fact perfectly positioned to capitalize on probably the most spectacular market roller-coaster of our lifetimes.

 

[soupcxan]

Kombat - you described my situation to a tee, except I started working five years after you, so my investment returns are not just 0%, they are negative (before you factor inflation, which reduces them even further). It is quite frustrating to do what you are told is responsible and be punished for it.

Meanwhile, a lot of people either lied on their mortgage applications to buy a house they couldn't afford, or got underwater on the house they bought because they used its equity as an ATM to buy flat-screen TVs and BMWs. Those people still have their fancy toys and their big house - now they are getting an extra reward for bad behavior through tax breaks, short sales, and bailouts that I'm not eligible for.

 

[CCdaCE]

These last two posts have really expanded on the last sentence of my post. Thoroughly expanded on what I was trying to get at, but [-]too lazy to put it into[/-] sparing readers a lengthy post.

Being on the cusp of the instant gratification [-]generation[/-] crowd, it seems like I've/we've done everything right, and now we'll get punished for it; leading to "don't get me started on the politics of the last 8, 16? and the next 4". Rome is crumbling?

-CC

 

[FIREd]

Kombat, you also described my own situation. We are 34, started working in 2000, saved a good chunk of our income from day one and things looked pretty darn good in 2007 (we averaged 8%+ annual return since 2000 despite the tech bubble bursting on us). We seemed to be right on track with our retirement plans (FI at age 45-50). Then it all came tumbling down. Our average annual return is now right around zero.

It's disappointing. But we are young (that's the silver lining). We have time to adjust our retirement plans and savings rate to compensate for any shortfall and we have time to recoup those losses. But this was an important market lesson for me and it will have a lasting impact on the way I save and invest my money in the future. I will have a much better appreciation for equity risk, that's for sure.

The lesson was much more brutal for people in their 60's and 70's. I have been astonished at the number of retired people I meet who have lost 40-60% of their nest egg. Most had over 80% of their stash in stocks, some even had most of their money in a single stock. Many didn't even know they had that much money riding in the stock market because they trusted their FA to come up with an age-appropriate asset allocation. Even people who were diversified have lost considerable amounts of money. My MIL, 65, is freaking out right now. Her small nest egg has taken a beating and she needs the money to help pay the bills.

 

[Hobo]

The lesson was much more brutal for people in their 60's and 70's. I have been astonished at the number of retired people I meet who have lost 40-60% of their nest egg. Most had over 80% of their stash in stocks, some even had most of their money in a single stock. Many didn't even know they had that much money riding in the stock market because they trusted their FA to come up with an age-appropriate asset allocation. Even people who were diversified have lost considerable amounts of money. My MIL, 65, is freaking out right now. Her small nest egg has taken a beating and she needs the money to help pay the bills.

If the young people take any lesson away from this economic downturn, it should be to "not get complacent". I am 62 and I learned this lesson in 1978 with 15-20% inflation, high unemployment, and zero economic growth was called stagflation.

In good times people are always saying, "We finally have full control of the economy and never will experience a downturn again." That's a sure sign that people are becoming too complacent. In most cases, you can see the writing on the wall of a coming recession. The BIG clue this time was the doubling of house prices in a 5 year period. Nothing doubles in value in 5 years - especially big ticket items. Something must be wrong. Also, our national debt was steadily accelerating and the import/export balance of trade was growing at a rapid rate as well.

All of these very disturbing economic trends were well reported in the news, yet the stock market continued to climb. If the one rule of thumb for successful investing is "invest for the long run", then a second rule of thumb is to change your portfolio (and take your profit) when thing look "too good to be true". This may should like conflicting advise, but it is not. The "long run" should be a length of time about 5-7 years. If your investment strategy has produced a nice profit after this length of time, then it is time to restructure. Put more money in safer places and review your portfolio to make sure you are not in a dying or threatened market.

Second, look for black clouds on the horizon. One example is health care stocks. They have been climbing steadily for a long time, highly recommended as being "recession proof", and now Obama has a mandate to lower health care costs. You don't have to be a stock wizard to see that investing in health care is risky. If I am totally wrong then I will have missed out on an opportunity. IMO it is better to error on the side of caution.

You can use the same common sense logic to see where the sun is likely to continue to shine. Recognizing that a falling stock market leaves few survivors, every stock is at risk simply because of investor sentiment. This tells me that some very promising businesses must be extremely undervalued. Looking at the world around us, it seems obvious that technology still has a strong future. Handphones are constantly evolving - but I see many areas of life that technology has not yet touched. All levels of education could become more interactive through some yet undeveloped device that ever student needs. Interactive shopping and aids for running a household still is still stuck on the internet. I can see the need for devices to monitor food supply and other household supplies becoming more interactive and user friendly. The same devices could aid business office supplies.

Since most technology stocks are traded on the Nasdaq, it seem logical that this still has a lot of potential for growth. A broad based technology fund, such as Vanguard or technology exchange-traded fund (or ETF) clearly has a bright future.

My point in all this discussion is not to give stock advice. Rather, be aware of what major trends are changing in the world around you. Of course you will want to listen to the convention wisdom for constructing your investment portfolio and strategy. However, when the time comes for you to make the hard decision on selecting an area of investment, look at the macro world around you for some obvious clues on what the future holds. And don't disregard the obvious dark clouds and rays of sunshine.

 

[Lusitan]

In many ways, I feel cheated. I've followed all the usual sage advice about "paying ourselves first," saving and investing 20% of our wages, choosing mutual funds instead of trying to pick stocks, buying and holding, dollar-cost-averaging it, the whole bit ... We haven't achieved a 10% rate of return - we've achieved 0%. When you factor in inflation, we've been losing 2-3% per year. What's going on? We played by the rules, we did all the smart things we were supposed to.

Let me guess: you also have been renting or living in less-than-ideal housing because you didn't want to spend more than you could reasonably afford, while your friends and neighbors who make and save less than you do bought big houses that they couldn't afford.

Am I right? If so, we're in the same boat. Nice to see that not only are my investments tanking, but having been responsible for the past 10 years I'm now expected to help bail out those irresponsible neighbors simply because someone utters the magic words "lose their home" and "American dream". Give me an effing break, and get your @ss into a rented apartment!

The inescapable fact is that had I been irresponsible with my money, spent more than I could responsibly afford on a house (and perhaps cashed in imaginary equity to fill that house with expensive toys) and took on zero investment risk in whatever I did save (i.e. just throw it into FDIC insured CDs) I would be enjoying a much higher standard of living than I am today.

I'm really bitter about it. It seriously has me questioning whether the best strategy for the future isn't simply to just follow the herd no matter how foolish they are, because there is apparently safety in numbers; you will belong to a group with the power to simply take from others.

 

[ERD50]

For a bunch of 25-35 Year Olds, you sure are soundng like a bunch of old pharts!

Join the club. But take some time out from your grousing to have some fun. You're young!


-ERD50

 

[FUEGO]

Is it really as bad as you guys are making it out to be? Obviously it is unfair that worthless pieces of crap that ran up huge debts and bought houses they could never afford are getting big ole hunks o govmint cheese now. But don't you all still have decent sized six figure portfolios (1/2 the size of a year ago admittedly)? And don't you have a low cost lifestyle that will continue to allow you to save a significant portion of your income? Your debt-ridden peers will probably come out of this with very little net worth and no ability to save any real portion of their income.

Those suckers that are getting bailed out will never learn. Just feel comfort in the schadenfreude that they will be working many decades beyond what you will have to.

One thing I have learned from this is to go ahead and loosen the purse strings a bit and enjoy life now more. It may add a few months or a year to that FIRE date, but so what?

 

[BunsGettingFirm]

Trust me. As soon as you're past 35, all of your worries go away, as well your hair, your waist line, and your libido, so look forward to a great a future!

 

[CCdaCE]

Is it really as bad as you guys are making it out to be? Obviously it is unfair that worthless pieces of crap that ran up huge debts and bought houses they could never afford are getting big ole hunks o govmint cheese now. But don't you all still have decent sized six figure portfolios (1/2 the size of a year ago admittedly)? And don't you have a low cost lifestyle that will continue to allow you to save a significant portion of your income? Your debt-ridden peers will probably come out of this with very little net worth and no ability to save any real portion of their income.

Those suckers that are getting bailed out will never learn. Just feel comfort in the schadenfreude that they will be working many decades beyond what you will have to.

One thing I have learned from this is to go ahead and loosen the purse strings a bit and enjoy life now more. It may add a few months or a year to that FIRE date, but so what?

I have this sick inclination to double down and open a Roth for the wife. And, this is coming from a non-gambler. So, who knows what it'll bring. Still happy for my stable job, health, and ice fishin' trips.

Trust me. As soon as you're past 35, all of your worries go away, as well your hair, your waist line, and your libido, so look forward to a great a future!

You mean things get worse! Next thing you're gonna tell me is that a 13 yr. old is worse than a 3 yr. old!

-CC

 

[se012101]

I'm 38, and my wife is 30. We're ok so far. Skipped the stock market entirely and paid off the house instead. We just got our release of lien document a week ago.

In 2007, when we were going full throttle with the extra house payments, several of my colleagues at work told me I was crazy - that I could earn much more in a conventional portfolio. Well, hindsight's 20/20, but I'm sure glad we took the course we did. The equivalent of a 6.5% return, when others were losing 30-50%. And that house payment is gone forever, regardless of what the market does.

Regardless, being in this age group, you have to keep in mind that it could be a lot worse. A lot of the loss is not actually realized unless you freak out and sell at the bottom. For older people - ouch. My father-in-law got hurt a lot. He lost a lot in 2002 when he was just about to retire, and now this. Luckily his wife is younger and still working, but it's tight for them right now.

 

[plex]

During 2007 and 2008, my investments were split between maxing a Roth, and putting the other half in CD's at 6%.

I fully intend to max my Roths this year, and next year, however I have to do it. The stock market is looking like a really good investment now, especially with the tax-advantages a Roth offers. I have only been investing a couple years though, so that takes a lot of the sting out of the recent plunge.

I rent as well, it is not that bad. For one thing, I still have the potential first-home credit to use (which is now a real tax credit and not a 0% loan), and, I am not underwater with debt repayments on a mortgage. While the government is "bailing out" some people, it is only those who are actually trying to pay off their under-water mortgages, the mortgages are not getting forgiven. Even if some it was forgiven, since it is a bank loan, the forgiven loan is counted as taxable income, and they still have to pay taxable gains tax on it, whether they know that or not.

I don't think any of the people who made stupid decisions are getting off free.

 

[Hobo]

As an oldster, I can tell you that Roth is a really good deal. I have heard of a lot of people who get sick and need to take out IRA money premature. There is no early withdrawal penalty, but it just seems there is never a good time to pay taxes on an IRA distribution. If you've got to pay taxes, it's best to pay them when you have a earned income, IMO.