Friday, November 18, 2011

Is There A Choice???

I read a short article this morning on saving for retirement. The article references a 35 year old saving for retirement and it explored his saving options: saving in a 60% stock portfolio vs. 80%  in stocks. And I thought: as we sit in an environment where the economy is shaky, personal and government debts are high,  the media and some investing advisers telling people "this time its different." What is one to do? Should one invest in the stock market? Is this advice still valid?

I believe it is.

I think one has to invest at some level in the global stock market. Your other option is keep your nest egg in cash or in a bank- earning nothing and actually losing value through inflation - that is a risk concern in itself..
But if capitalism,  and thus our economy implodes, then it wont matter if you held cash - banks will have failed and your Federal Reserve Note will be worthless.
So, one needs to take the leap of faith: that, over the long haul, capital markets will provide positive returns that exceed inflation. If they dont, as I said, it means that our economy has collapsed and then nothing you have has value.

I know, someone is sure to mention gold. But when the economic apocalypse occurs, one can take their gold too Wal Mart, unfortunately nobody will be there to exchange your gold for goods and the shelves will have been looted dry. As the economist Nouriel Roubin has said, forget gold, one will want Spam when the economic apocalypse arrives.

I maintain the old rules hold: one must invest in a mix of cash, bonds, stocks that are appropriate for the investors risk tolerance and time horizons.

A final thought: as many have rushed into US Treasury Bonds, ask yourself, who generally manages their finances better: governments or the majority of public companies? Congress or Wal Mart, GE, Apple, Microsoft etc?

I referenced this idea in a prior post: "REM, Pascals Wager and The Stock Market"

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