Retirement Strategy: A Contrarian View
If you talk to any financial planner, or any retirement expert, they are likely going to tell you that investing in the stock market soon before you plan to retire is never a good idea. The closer you get to leaving the workplace for good the less risk you want associated with your retirement funds. Under normal circumstances this is sound advise, and those nearing retirement should generally take heed to it. However, the current state of the economy and the markets are not normal circumstances.
Yes, the markets are a bit dizzying right now with huge swings up and down, and being in this kind of a market is sort of like riding on a roller coaster with a blindfold on. Most people like to at least have some idea of where the tracks lead to.
There is panic on the Street, and money is rocketing out of stocks as investors all but throw in the towel on any hopes for any real recovery. The business climate is dismal and constrained, and who knows where taxes are going to be, but most folks who know a little bit about financial matters are inclined to believe that taxes will invariably go up. Perhaps even way up if the Obama administration and the democratic caucus has anything to say about it. Forget about future spending. We already owe a ton of money and according to the democrat party the only way you can get that kind of money dwindled down is by extracting it from the top 1%. All of this makes people in the markets very nervous. But I digress.
There are a couple of things that I see that make these drops in the market in particular very different from the lows we saw in 2008 and in 2009. The fundamentals are also very different now than they were then in my opinion. One big difference is that any money coming out of stocks right now is real, tangible money that is simply being converted to cash. In the case of the lowest lows we reached in 2008 and in 2009, it was money that simply vanished into thin air. Then, when the markets tumbled, the money simply went away. Let's not forget that companies are sitting on mountains of cash already, and now many investors will be too. That makes our current circumstances different as well.
The way I see it there are only two logical conclusions as to where some of that cash is going to go when the smoke clears and things start to swing more toward an upward trend—and things will eventually swing that way. History tells us this is so, and while it's not a guaranteed indicator, I'm inclined to believe that there is stronger evidence to support better times ahead than there is to support a complete economic collapse. I think we are wise enough to figure out where the brick wall is and put the brakes on well before we go slamming into it.
So where will all that cash go? It is no secret that money has a tendency to burn a hole in whosever pocket it happens to be in, and wise investors and smart businessmen don't let good opportunities to make a buck pass them by. The cash will either be spent, which bodes well the economy, or it will eventually be put back into stocks, or will be used to start new businesses and create jobs, which bodes well for the markets. Without sounding condescending, I just don't think this is really rocket science we're talking about here.
Because of this, I'm inclined to believe that putting off retirement for just a few more years may be the best decision anyone nearing retirement can make. As well, I think staying the course and buying into these market conditions can also make for a much more fruitful retirement. I'm not saying anyone close to retirement should go crazy and go all in. But I do think that the percentage of one's retirement funds devoted to stocks should be raised.
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