The Future of the Stock Market
The stock market looks as if it is finally rebounding, and the amount of corporate scandal has at least slowed. To some, the stock market looks like a safe investment once again. According to numerous experts this may not be the case. In fact many are predicting the most severe stock market crash sometime within the next 10-15 years, and it may have everything to do with the law that created the individual retirement account (IRA).
The Employee Retirement Income Security Act (ERISA) was enacted in 1974 to address concerns that private pension plan funds were being mismanaged and abused. ERISA moved responsibility for retirement savings from the businesses who employed workers to the workers themselves. This act created what we know today as IRAs.
One of the provisions of this law dictates when IRA holders reach the age of 70, they must begin to take mandatory distributions from their IRAs. This is based on a life expectancy table, the goal of which is to have the average retiree deplete their retirement savings completely by the time they die.
Many stock market and financial analysts are very concerned regarding this provision. According to an article in Time Magazine, titled Everyone, Back in the Labor Pool, “the baby boomers… [are] turning 50 at the rate of 10,000 a day.” Every year almost 4 million baby boomers are moving closer to the mandatory distribution age of 70. This baby boomer population is the largest segment of the American population and also happens to be the wealthiest segment.
As those baby boomers reach 70 and are forced to begin drawing from their retirement funds, more and more money will be leaving the stock market. Many fear this could trigger the biggest crash in history. A stock broker who requested anonymity stated, “If there was another serious downturn in the stock market, I wouldn’t be surprised if a large number of investors panicked and pulled completely out of the stock market. There could be a huge domino effect as this money leaves the market. After the crash of 2000, few individual investors have the stomach to take on another big bear market.”
Daniel Kadlec a financial columnist suggests a solution. “The first step toward fixing the problem is to recognize how dramatically things have changed. People need to downscale their expectations and recognize that the phenomenal returns of the 1990s were the aberration.” The best strategy he points out is to begin to save earlier. Others suggest diversifying one’s retirement portfolio to include businesses and real estate. David Nilssen, Director of Education for Guidant Financial Group tells us, “Whether or not there is another stock market crash, it is always a good idea to diversify your investment portfolio. Stocks, businesses, financial paper, and real estate can all be great investments. All of these can be invested in using IRA, 401k, or personal savings funds. Don’t put all your eggs in one basket.”
Now this be speaks a great truth. My Grandfather and his law partner went short with great success in the crash of 1929. Within 30 days there after he and his partner Baruck folded their law practice in New York and from that day onward my Grandfather never bought another stock. He came to California to join his high living daughter my mother. He built many houses and many multiple dwellings. Mostly little English looking cottages lined up around a central garden. He really enjoyed himself. His advise to me was learn the market, learn banking, have at least one trade, and play my own game. Work for someone to learn but never more then 12 months. Take the Bar but do not practice. Use the lawyering skills for your own use. Play with your own contracts and write most of your paper from scratch. Learn to identify a Spike and know how to play it. Sweep the bottom when markets in real estate reverse. Never assume a position without a takeout. Or if that is not possible, then sit and devise and list your moves for exit. Never build without having dug one of the soil inspection holes yourself. Never let an Architect supervise a job sit. Indeed better to always do this yourself. Take a license in your trade. (Plumbing) always expand it to a General Contractors License (B-1). All sub contractors must sign contracts with termination dates. Award bonus for fast time and penalties for overage times. Ignore Credit Reports for Tenant Qualification. Just check with prior Landlords. Any body can stiff you once, his fault, twice, your fault. Never attack a tradesman who has knocked you down. Wait until he turns his back and then put him away with the customary two by four. Anything larger is a declared foul. Plumbing Leaks are to be handled at once. Gas leaks even faster. Keep a plunger in your truck and a power snake if you are handy.
Love people and respect persons. Never smile at the wife of any man who wears a large woolen biscuit on his head. If a tenant speaks Pushtu, Darsi or Eastern Arabic Dialect. Do not push him for the rent, offer to advance it for him. Send someone you dislike to collect the rent. If he still cannot pay the rent and offers you his daughter, decline at once. Ask for the wife. He will then pay the rent, probably in cash. If he offers you a cash tip. Decline especialy if he offers it with his left hand. Offer to reduce his rent and make him assistant manager. This is handy if your manager should be terminated. Probably will be and never to be found. Make the now assistant manager the new manager. Finance his first purchases of Vending Machines. If his daughter shows up at your door late at night. All is forgiven. Tell her she is Beautiful and much too good for you. Give her a small gift. Perhaps a Canary and send her home."
Now such are the laws of the Real Estate jungle. Remember to keep them and Shercon the tiger will stay away. Kaa the snake will be your teacher and you will prosper My best to Mogli.
I am 82, I have lived by those rules. They work. Because of them my children and grandchildren are now spoiled and rich.
I by election now get to start all over again and I must say I am enjoying it. I see LeDome seldom but Chez Denny a lot. the conversational values about the same. The show biz hype reduced and the problem exposure intense. A change of wardrobe will not solve most of the problems I now hear.
Cheers from LaLa Land. Lucius
I thought this was a very informative piece. Short and to the point. I don't think anyone can argue the point that everyone should diversify into more than stocks. Nice job Guidant.
Robert Kiyosaki mentions this in detail in his book "Prophecy" everyone should get it immediately.
And you know what, the pundits on TV telling everyone to buy and hold long, should be telling people of this impending nightmare.
In fact the govt should step in and in stages help the country to avoid this massive scale market destruction.....whoops, I forgot, the bankers and government will make out well in the blood bath, as they wrote ERISA knowing full well what would happen in the 2010s, how could they not? It was written just after the baby boom was over. I almost assumed that they care about the well being of the public!
Silly me..... great article, more should know about this, Dave
Time in the market and respect for cyclical nature of all investments is wise. Be moderate in the employment of leverage...always be alert for a deal...and never pay too much...like all cycles, many are currently paying far too much...take the long-run strategy...spend less than one's income...expect all turnarounds to take longer and cost more than planned...time and capacity to carry investments will usually bring great returns. Live long and prosper.
Just have to share a recent success: bought two lots from distressed seller (IRS caught up with him) at $26K, signed contract yesterday for $40K cash. YES!!!!
that was my first deal, took 15 months from acquisition to contract to sell. Planned to build but it was going to cost me too much (sanity plus marriage).
This will let me finish my second deal, a pre-fc total rehab that is eating me alive. Hope to net a gain but at this point said marriage is still hanging by a thread (he's doing the remodeling . . . )
Lesson #1: don't expect your spouse to fix it for you!
thanks for letting me share
Shelly in Kennesaw
Fixing. Is it possible to see real gains without having to do the work yourself? Beginner Stan
The biggest problem with the stock market is control. I do not want my money anywhere where I have to give up control, esp. to distant CEOs and others I've never met. That doesn't mean I'm a control freak, just that I don't want to leave my money in charge of strangers, who are surely weathier than I. This is why I like real estate and other tangible assets. I know what's happening, and don't have to read the paper ever morning and wonder if my investment is going down the tubes due to something I never saw coming.
I agree, the stock market is a comparatively poor place to invest compared to the opportunities that real estate offer. However, I use the stock market for short term momentum options trading to reap the profits that can come from significant up OR down movement. Kind of like flipping properties, buying wholesale and selling retail. Lucius shared the wisdom that once one learns the 'how to' of various skills and trading methodology, then one can pounce upon opportunity wherever it presents itself. But, I use real estate as my main equity builder.
To me this is just more government
"AGE Discriminantion".
This is starting to be addressed by many groups but has a way to go.
Boomers Beware!!!!