Effect of market turmoil on my generation?

[Canadian Grunt]

Originally Posted by FIREdreamer

I am 34 and if there is one thing I am more certain about than ever is that saving is not a losing game. If anything, it looks more and more probable that I will have to save my way to retirement. With stock and bond returns projected to be below par going forward, I think it is possible that, by the time I retire, the majority of the money in my retirement accounts will have come from savings and not from stock/bond market gains.

I have yet to be convinced about the benefits of the stock market (I started investing in 2000 and, as of tonight, still haven't made a profit in 8 years). But I will give it the benefit of the doubt and time. On the other hand, I have been known to be conservative with my money and I have always kept a fairly high percentage of my portfolio in bonds and cash (35%). This latest crisis is unlikely to make me change my AA one way or the other.

As for paying attention to my monthly expenses, well I have always done it and it won't change. My wife and I have always lived below our means and saved a good chunk of our income. Our spending pattern probably won't change much either. I remember my parents tightening their belts during recessions in the 70's and 80's and I tend to do the same. I guess it's second nature for me. This year our expenses are down 10-15% compared to last year. But I doubt that the current crisis will have a lasting impact on our spending. As soon as we emerge from the current recession, we will probably go back to spending our money more freely. When the times are good I don't mind "laissez les bons temps rouler"...

See my post regarding my use of bonds, just above this one.

[FIREdreamer]

Originally Posted by Canadian Grunt

See my post regarding my use of bonds, just above this one.

I have been rebalancing on the way down too, using part of my cash/bond position to buy cheap equities (see my post here: Did anyone buy this week?). I still have some dry powder (and I think I will have plenty of opportunities to use it in the next few months), but there is no way I am going 100% equities for one good reason: last month, in order to keep a 1-year emergency fund, I had to keep at least 15% of my portfolio in cash / safe bonds. After this month's drop, I now need to keep 18% of my portfolio in cash / safe bonds. If you feel fine with all your money in the stock market, with no emergency fund and no back stop, good for you! Obviously each situation is different. But I don't need stellar returns on my money to retire (6-7% annual will suffice), so I am not going to bet the farm on the stock market.

[ziggy29]

Well, there's good news and bad news in my opinion.

We'll get the bad out of the way first. There is no question in my mind that economically and demographically, the cards are stacked against younger generations, and the younger the generation, the more severe is the stacking. Debt will higher, taxes will be higher, retirement benefits are getting stingier, and one wonders if the growth that comes from equities can continue indefinitely given that growth requires more and more people and consumed resources. Their are far more headwinds for younger people in terms of retirement security, and the younger you get, the stiffer the headwind. I happen to believe we may be seeing the beginning of the end of retirement as an attainable middle class goal. The door seems to be closing ever so slowly.

Having said that, the good news is: That door isn't closed YET. Today's young generations enter the work force knowing the cards are way more stacked against them than it was for their parents and grandparents. They KNOW not to expect pensions and Social Security as we know it. They know they have to start investing for retirement on their own, and a lot of it, in order to get there with any decent likelihood.

The tendency over the last 30 years has steadily gone more toward a self-directed retirement rather than the assumption that employers and governments will provide it. And it's very important for 20-somethings today to recognize that and start getting ahead of the game. They are not and will not get the deal their parents and grandparents got. The sooner they accept that unfortunate reality, the better for themselves long term. It ain't fair what older generations did to today's youth, but wishing it weren't so won't make it go away.

[Nords]

Originally Posted by soupcxan

I'm curious what the long-term impact of the market's turmoil will be on the 25-35 year olds out there that are starting to establish themselves in their careers and generate real income. Will we stop buying (or at least cut back) equities and shift to bonds? Or take advantage of it as an opportunity to load up on more shares? Will we pay more attention to their monthly expenses and stop buying so much junk? Or decide that saving is a losing game and figure they might as well live for the moment and splurge? Will they focus on paying down debt (credit card, mortgage, student loans) before investing for retirement?

Originally Posted by ziggy29

We'll get the bad out of the way first. There is no question in my mind that economically and demographically, the cards are stacked against younger generations, and the younger the generation, the more severe is the stacking. Debt will higher, taxes will be higher, retirement benefits are getting stingier, and one wonders if the growth that comes from equities can continue indefinitely given that growth requires more and more people and consumed resources. Their are far more headwinds for younger people in terms of retirement security, and the younger you get, the stiffer the headwind. I happen to believe we may be seeing the beginning of the end of retirement as an attainable middle class goal. The door seems to be closing ever so slowly.
Having said that, the good news is: That door isn't closed YET. Today's young generations enter the work force knowing the cards are way more stacked against them than it was for their parents and grandparents. They KNOW not to expect pensions and Social Security as we know it. They know they have to start investing for retirement on their own, and a lot of it, in order to get there with any decent likelihood.
The tendency over the last 30 years has steadily gone more toward a self-directed retirement rather than the assumption that employers and governments will provide it. And it's very important for 20-somethings today to recognize that and start getting ahead of the game. They are not and will not get the deal their parents and grandparents got. The sooner they accept that unfortunate reality, the better for themselves long term. It ain't fair what older generations did to today's youth, but wishing it weren't so won't make it go away.

I think Socrates & Plato penned similar essays titled "... But this time it's really different!"

[Uncle Drew]

Originally Posted by FIREdreamer

I am 34 and if there is one thing I am more certain about than ever is that saving is not a losing game. If anything, it looks more and more probable that I will have to save my way to retirement. With stock and bond returns projected to be below par going forward, I think it is possible that, by the time I retire, the majority of the money in my retirement accounts will have come from savings and not from stock/bond market gains.

I have yet to be convinced about the benefits of the stock market (I started investing in 2000 and, as of tonight, still haven't made a profit in 8 years). But I will give it the benefit of the doubt and time. On the other hand, I have been known to be conservative with my money and I have always kept a fairly high percentage of my portfolio in bonds and cash (35%). This latest crisis is unlikely to make me change my AA one way or the other.

As for paying attention to my monthly expenses, well I have always done it and it won't change. My wife and I have always lived below our means and saved a good chunk of our income. Our spending pattern probably won't change much either. I remember my parents tightening their belts during recessions in the 70's and 80's and I tend to do the same. I guess it's second nature for me. This year our expenses are down 10-15% compared to last year. But I doubt that the current crisis will have a lasting impact on our spending. As soon as we emerge from the current recession, we will probably go back to spending our money more freely. When the times are good I don't mind "laissez les bons temps rouler"...

Firedreamer, this sounds so much like my wife and I that it's scary. Cheers!

[John23]

I'm 30.

I read a quote somewhere on a youtube video about the economy, Ron Paul, Peter Schiff. One of those videos. This was a few weeks ago, right at the bottom of the carnage (iceland went bankrupt, seemed like the whole world was shifting).

Maybe someone can help me out. It was an eerie quote...(I'm paraphrasing)

"There are years and decades when nothing happens. And there are days, weeks when decades happen".

When I think about what's happened....the market blowing up, nationalization of fannie, freddie, the big bailouts, restructuring of wall street, everything hitting the fan. Obama presidency.

I think the sands have shifted. There was before 2004-08, and after. 2008 is a year where decades happened.

The future...

-I think higher commodity prices. The Jim Rogers 20 year commodity super cycle theory. Commodities go in these 18-25 year cycles. We're maybe half way through. Won't be good for stocks.

-Higher interest rates. I don't know what that's going to do to stocks. Can't be good.

-Japan L shaped recession/depression?? Don't know.

-Pension, social security. Hard not to laugh. Wouldn't count on that in a million years.

I think this generation will spend less, cut back on credit eventually...maybe try to enjoy life more. Maybe more government involvement (obama).