When asked what investors would learn from the current crisis, Jeremy Grantham (renowned institutional investor) remarked, “In the short term a lot. In the medium term a little. In the long term, nothing at all. That is the historical precedent.”
James Montier, Societe General, June 18, 2009
“As bad as the past decade has been, there have been other ten-year periods during which stocks have recorded even bigger losses. Yet over 20 years or longer, stocks have never lost money, even after inflation. Including the latest bear market, stock returns have averaged 7.80% per year over the past 20 years and 11% annually over the past 30 years.”
Jeremy Seigel, Kiplinger.com, July 23, 2009
“Those looking for the economic numbers to validate the market’s move or for corporate executives to express optimism about the outlook are likely to continue to be disappointed. Economic numbers report the past, and corporations observe the present, while the market lives for the future. Corporations always express the most optimism about the outlook at the top, and the most pessimism at the bottom. Markets are about expectations, and expectations are about the future are improving, on balance, and so are the markets.”
Bill Miller, 2nd Quarter Commentary, leggmason.com, July 19, 2009
You’ve been warned!
Based upon my retirement being years away, I pay minimal if any attention to my annual Social Security statement. However, when reviewing this year’s statement I noticed a very interesting * (asterisk) next of all the estimated benefits. The corresponding explanation is as follows:
* Your estimated benefits are based upon current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because by 2037, the payroll taxes will be enough to pay only about 76 percent of scheduled benefits.
The government is warning me and you (those who are still working / not retired) that Social Security cannot meet its obligations. This I have known for quite awhile; however, yesterday’s Wall Street Journal had an interesting article regarding this issue. In the article it noted that many politicians in D.C. (are candid, at least in private) about considering not only increasing the payroll taxes we pay to fund social security and Medicare, but also implementing means-test entitlements. Basically, if your income, net worth or a combination thereof exceeds a pre-determined threshold or benchmark, set by the government, then you will lose benefits.
That being said, it is extremely important that we not become too comfortable or reliant on our Social Security benefits. Just ask any retiree whose pension, health insurance or other benefits have been dramatically reduced due to the inability of the company to meet its ongoing obligations.
A much better solution to this problem is to take matters into our own hands:
- Watch our expenses
- Increase our savings for retirement while paying down any outstanding debt
- Run retirement projections based upon realistic personal financial information and make adjustments for market setbacks or extraordinary events – positive or negative
- Instead of spending tax refunds or bonuses – invest them in your Roth IRA or 401(k)
If we don’t take this type of warning seriously, then we are apt to find that the money we counted for retirement is not nearly what we expected. Then we’ll either continue working to make up the difference or live a much less desirable lifestyle in retirement. A little delayed gratification today can pay huge dividends in our golden years.
Quotes
“A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort.”
Herm Albright, painter, lithographer
“Problems cannot be solved by the same level of thinking that created them.” Albert Einstein, Nobel Prize Physicist
“The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.”
John Foster Dulles, former Secretary of State under Dwight D. Eisenhower
Happy New Year to you and your families!
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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