Monday, August 3, 2009

Hey, You Can’t Afford to Be Old Just Yet

According to a Hewitt Associates study, the median rate of return on 401(k) plans during 2008 was NEGATIVE 28.3 percent! The average 401(k) balance dropped from $79,600 to $57,200 at the end of 2008 – that’s a loss of $22,400 in just 12 months. Also, 44 percent of workers lost 30 percent or more of their savings.

In the 12 months following the stock market’s peak in October 2007, more than $1 TRILLION worth of stock value held in 401(k) and other qualified plans was wiped out, according to the Center for Retirement Research at Boston College.

If you have any investments in the stock market, I am willing to bet that you’ve called – or been calling – your financial adviser, paid close attention to the experts on TV, scoured websites, and/or devoured newspaper columns and financial magazines looking for some sort of cure for your depleting assets.

The Fallacy

I am also pretty sure that if your financial adviser mustered the courage to call you back, his or her response went something like this: “Your losses are only on paper. Focus on the long term, because in the long term – whenever that is – you’ll be okay.”

In essence, the message to you – which is really no kind of solution – is that you cannot afford to be old yet (i.e., think long term). You must delay retirement. But what if you are already retired? Are you still to wait for the long term?

The truth is, your losses – as well as those of millions of other investors just like you – are REAL. Once you lose in the stock market, that investment is lost forever. When the market recovers, you don't get the “old” money back; it is “new” money that comes in to replace the old.

These so-called financial experts cannot and should not be telling investors – or even implying – that if they hold their stocks long enough, the risk will disappear and they’ll always end up in great shape.

What Is Long-Term, REALLY?

As an investor, you want to ask this question of your advisor, so at least you can know their perception of the answer: “Mr./Ms. Advisor, how long, exactly, is this “long-term” you’re referring to?”

The fact is that investors who had their money in the stock market for 3 years or 30 years, alike, all lost significant portions of their nest eggs. So to profess that simply thinking long term is the answer is, frankly, false and bizarre.

Let me say it once again. Common sense tells me that you should NOT leave your retirement to chance. As a financial strategist, I have never suggested that it is in the best interest of my investors to put their retirement funds directly into the stock market – via stocks or mutual funds, because retirement is certain, and people’s livelihoods should be, as well. We therefore recommend and help our clients secure less volatile, more stable investments.

Imagine playing cards or slots at a casino where, at the end of your play, you were guaranteed to leave with no less than all the money you entered with (principal), plus 1 or 2 percent more. On the other hand, if you won, you got to keep all of your gains, up to a cap of 12 or 15 percent.

Is that an arrangement you could live with? This is precisely the strategy we advise for our clients.

Here is the million-dollar question: If you had been utilizing a strategy like ours during the market’s recent downturn, where would your retirement assets be today?
Find out how to protect your investments and banish this idea of "long term" forever. Call us today for your free consultation (301-949-4449) or visit our Web site:


  1. GREAT blog, Samuel!!

  2. I had no 401K I lost nothing and even got a raise, as long as I have breath in my body and tools in my box I'll have a way to make money. F-the stock market


Chime in with your comments or questions: