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Retirement Strategy: A Contrarian View

Updated on August 20, 2011

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.

Where do you see the economy in the next 5 years?

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    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      You stated almost verbatim an argument I made in another previous hub, "A Survey Serves As Another Reminder to Buy American," wherein I stated the following:

      "My big begging question going forward is not so much will we recover, because I'm certain we will, but rather will that recovery be lasting if we simply go back to the state of the way things were before the Great Recession got under way? I'm inclined to believe that if we return to what I think was clearly a false and illusionary sense of growth and prosperity, which was based entirely on access to credit and not on any real increase in earnings power of average Americans, we're in for something far worse and far more damaging than even the Great Depression was."

      I think credit is really at the root of it all. It allowed people to have money without having money. It created demand without money to fuel the demand. The demand created SOME jobs, or at least people had more access to jobs, EVEN IF those jobs did not pay as well and did not cover the debts, people could hold those debts so long as the money kept rolling in. In turn, companies were able to keep more and more of the money rolling in, and they largely kept that money for their CEOs and shareholders. But the employees got hosed. But it was OKAY, because again, credit could make up for the lack of better wages and benefits to get access to the good life.

      If we go down this path again, you are absolutely correct in your assertion that it will destroy us for good. This is a strong fear I have as well. It's true that folks like you and I can still make wise choices and weather the storm. But when we succeed and the rest do not, what generally happens is the folks that didn't or cannot start looking at me as a means to help them out. So, in the end I wind up losing anyway.

    • swordsbane profile image

      William Grant 6 years ago from Wisconsin

      Yes, bubbles do burst, but not without warning. There were a LOT of people who saw the housing bubble burst, who saw the energy crisis before it happened, who saw the tech bubble and the savings and loan fiasco before it happened. Most of those people in each event were the same. Each time, they tried to warn the powers that be about it and each time they were ignored. I can trade the stock market under those circumstances. Anyone can, and you can trade gold too. You just have to know who to listen to.

      The "fix" for the economy is simple. Those same people are all saying ONE thing: Stop borrowing.

      Credit card industries exist on the assumption that people will remain in debt. If everyone paid off their balance every month, then there would not be enough money going into the companies to pay expenses and they would fold.

      When a bank loans you money, it's not because they HAVE it. They write the loan and that money is created out of thin air. No new paper money is printed because of that, and no gold is tagged as supporting the extra money. If everyone called in their debts or even just decided all at the same time to withdraw their money in full from the banks, the economy would collapse overnight. This is almost what happened this last time. It wasn't just a 'housing bubble' popping, it was a systematic overload of the credit system which almost brought all the big banks down. This time it was mortgages. It can and will happen again. We're putting in place the mechanisms for it to happen, and no one knows if this will be the time when the strain is too much. Maybe it will be the credit card system next time. The average person in the United States has 7 (SEVEN!!) credit cards and they all carry a balance.

      It doesn't take an economic genius to see that this is an unsustainable situation that exists largely because the general public is pretty much ignorant of what goes on.

    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      The period of time you refer to, and most of us do, I refer to as a period of false growth and prosperity, which was propped up by credit rather than real wages and real growth. People made less money, but had more stuff. How? Credit. I think your terminology stands correct that you have to have stability. In a sense, the credit that was made so readily available was AKIN to printing money. It made the value of the "growth," in the end, worthless. Intangible. Unsustainable. And thusly, false.

      I think what we have to have in this country in order to achieve that sustainable, stable economy is a change in our mindset as to what growth is truly made of, and that we cannot simply revert back to the way things were and call it done. We need to return to an economy that provides jobs, supports a strong a vibrant middle class, that encourages commerce AND savings, that instills into our future generations the importance of financial security, and that financial security is right in line with national security as well in many ways.

      For one, a country of non-savers means someone will need to be bailed out. A country of non-earners means someone will have to propped up. A country who must bail folks out and prop folks up will need to borrow much more money than IT has, and that borrowing will likely be, in many instances, directly from the hands of our enemies.

      On the issue of gold, I think trying to time when the bubble bursts is a dangerous way to make an investment. The problem with bubbles is that they DO burst, and usually without warning, and in a flash it's gone.

      With regard to the markets, I am hard pressed to see a bubble here. For now. The best short term gainers are the ones shorting the maybe the short markets are in a bubble?

    • swordsbane profile image

      William Grant 6 years ago from Wisconsin

      Gold is in a bubble, yeah... it's price is inflated, yeah... but so's the market in general. It will fall if and when the economy get's back on it's feet, but until then, it is predictable, and predictable means profitable. It doesn't matter if the market is acting irrationally, only if you can predict the irrationality. You said it yourself, the economy isn't going to be fixed anytime soon, so until then gold is still going to go up, or if it doesn't, you should be able to see the writing on the wall and get out.

      And while we're on it, growth is not a sign of a healthy economy. If it were, then the economy was at it's healthiest just before the housing bubble popped. No, a sign of a good economy is a STABLE economy. The only time you should have growth is when there is a new market or an increase in raw materials. Money doesn't count because when they print more, they devalue it. The value of the money doesn't change unless there are new resources. There are very few new resources and the one's we have are dwindling too fast (oil). Money is just a score card for inflation.

      If someone bought gold 2 years ago, then it's worth 60% more now ($100 vs $60). This means if you just cashed out, you made money a lot of money. This will continue as long as the recession continues. On the contrary, in the LONG TERM, gold is very chancy, and so is the economy in general. It's the SHORT TERM that makes it a solid investment (unless you're talking short term as a matter of weeks or a few days.. then you're taking a big risk) It's only if you think that the economy is on the verge of recovering that Gold looks bad.

    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      Swordsbane, I'm hoping my statement, "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," holds water. It's really a wait and see game because as I also stated, the policy mindset of this current administration is clearly in the wrong direction. That said I keep hearing everyone say we've got 16 months to wait to get anything done, and while I'm optimistic that means an ousting of this president in 2012, I don't think whoever winds up in the White House will be able to right things right away either. To think so I think would be more than naive.

      As for gold, I'm highly suspect about it. I won't touch it with a ten foot pole, and any gold stocks, ETFs, or mutual funds I may have owned tied to them I have since sold long ago. Gold is in a bubble. It's price has been inflated by the world economy uncertainty, and in particular, the lagging valuation of the US dollar, and even more uncertainty as to whether or not IT vs. the Euro may be a better bet to consider the "world" currency. When the economy gets back to a growth path I tend to think gold will plummet because the price of gold will be growing at a much smaller pace than the markets, and logically people will pull money out of it to put it into more lucrative things. Over the LONG TERM gold is still a good investment. But I think if one bought it in the last 2-3 years, they paid too much for it, and it will take the long term to get those monies back after it plummets.

    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      Drbj, thanks for your poetic comment. :) Something tells me that we contrarians may be seen laughing in the bank line with bags full of money in our clutches waiting to be deposited.

    • swordsbane profile image

      William Grant 6 years ago from Wisconsin

      As a day trader, I can back up most of what you're saying. The one caveat I will issue though is this: If the economy self destructs, then the bottom falls out of the market... the WHOLE market.

      The market is being propped up by good wishes and toilet paper right now, with the hope that before it tanks, something solid will appear that we can rest everything on. There is a good chance that this will happen. Everyone is scrambling to fix the economy and they are making some headway. However, there is a growing chance that SOMETHING BAD will happen that will bring the whole thing crashing down again. We just got nailed by a recession caused by too much borrowing, and the current fix is to borrow more. That can't keep up forever. The very best we can hope for with this strategy is to reset the board so we get another market crash in 20-30 years. Next time it might be housing... or insurance.. or maybe the credit system itself, but it WILL happen.

      But until it does, the market is predictable, and will probably go back to what it was before the crash and before THAT happens, commodities and gold are still king, even oil. I wouldn't be in the market if that weren't the case, and I wouldn't be making money. Even if the market is acting irrationally, we can take advantage of that, so don't worry.... yet.

      But make no mistake... the powers that be don't seem to realize what's going on, and that makes me worry. They raise the debt ceiling, tell us they are creating millions of jobs when in reality they aren't even keeping pace with population growth. Housing prices continue to decline and interest rates continue to sink with them. US bonds are at their lowest point since the crash began and will probably go lower. When they say we are in a slow recovery, they really mean that they are making progress in stemming the downward spiral. The upward movement in the economy is ENTIRELY the stock market. How is that a recovery?

      But every downward swing of the market creates buying opportunities, and for the short term there is a lot of money to be made. The dips are smaller and rebound quicker than they used to be, so if you're in the market now is not the time to get out, but may be time to move your money around a little faster.

      However, if you're looking more than five years into the future... beware. When all is said and done, the crash of 07 and 08 might go down in history as "the little one"

    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      Bdhall, that's the sad thing about this administration is that they don't get the GROWTH concept, which can only come from free markets working without the government hanging over their head and telling them how this should go and how that should go. I talk about my conept of free markets more in another hub of mine, "A Survey Serves As Another Reminder of Buy American." Growth is the only way you can truly increase revenues from taxpayers, I think, and it comes from not just wages, but spending as well. The way the current administration is going is just so backwards to me. But hey, the markets are on sale...again...and I think so long as one is buying into strong fundamentals and looking to dividends to get paid to wait for growth to return, it should have a payoff in the coming years. And yes, those soon to be retirees should be increasing the stock portions of their portfolios. They'll be glad they did. Thanks for stopping by and sharing your comment.

    • drbj profile image

      drbj and sherry 6 years ago from south Florida

      Mary, Mary was contrary and look how her garden grew.

      That's why I, too, am a contrarian, Jim, just like you.

      Thanks for the sensible commentary.

    • bdhall8377 profile image

      bdhall8377 6 years ago from Kansas

      I tend to think the economy will come back up over the next several years. I am fearful however that the rise will not be organic, and that things will get worse before they get better. Its just too bad our current government refuses to let the free market do what its suppose to do. The recovery, I believe would come more quickly that way. Great hub and good advice. The market plunges... buy!buy!buy!

    • Springboard profile image

      Springboard 6 years ago from Wisconsin

      Absolutely buying opportunities. I added shares to one current holding I have today, and actually started a new position. I simply think the markets are overreacting to a lot of uncertainty, and I do think as well that the actions of investors is to secretly send a message to our current president that his policies and his ideas as to how we create growth are not in the right direction. The money will come back, the markets will come back, and I personally feel like I'd be a fool not to see that and be a buyer right now.

    • Deborah-Diane profile image

      Deborah-Diane 6 years ago from Orange County, California

      I agree that things are going to improve over the next five years. We'll have set-backs, of course. In fact, on the day I'm writing this the market is down 450 points. However, these drops just provide buying opportunities.