Retirement is not an option

Posted at 3:50 PM on February 19, 2009 by Bob Collins (7 Comments)
Filed under: Economy

If you're over the age of 50, you can probably relate to my colleague, who took a look at the closing Dow average today and proclaimed,"someone wants me to die here at my desk."

To paraphrase: "Retirement is not an option."

The Dow closed at its lowest level in the last six years.

What's our next benchmark? If the Dow drops another 180 points, it'll be at the lowest level since October 28, 1997, the day the "Asian flu" halted trading on the New York Stock Exchange for the first time... ever.

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Comments (7)

I wouldn't be surprised to see the Dow drop another 25 - 30% from where it is today. I haven't heard a single report or analysis out there that thinks the economy turn around this calendar year. There is a lot of 2009 still to go...

Posted by Gorg Borg | February 19, 2009 5:16 PM

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Which leads me to question the advice we've all been getting to keep investing and don't cash out. The theory is that over time things go up. But what's the "point of no return?" What's the point at which the portfolio is SO far underwater that the average person doesn't have enough years left to offset the loss of sticking with things?

All of the financial services companies are running ads saying yo ucan't make money by trying to time the market. I think THIS market is pretty easy to time, isn't it? It's going to keep going down and if one were to cash out now, and it fell, that still gives you plenty of time to watch a market start coming back and still allow you to get back in at prices lower than where you cashed out doesn't it?

Posted by Bob Collins | February 19, 2009 5:54 PM

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For now, I'm out. Most of my IRA is in govt bonds until further notice.

When leisure stocks like Harley Davidson start rising, that's when we'll know it's safe to invest again.

Whether people such as myself who are over 50 can recover before they're 80 is another question.

Posted by Bob | February 19, 2009 9:04 PM

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Speaking of which, I see Indian motorcycles is opening up a new showroom in Maplewood, right next to Harley Davidson's big showroom. Is that a sign of something?

Posted by Bob Collins | February 19, 2009 9:22 PM

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That is very interesting. Would you be willing to check on how that Indian dealership is doing three to six months from now? It's just hard to imagine how anybody who's been whacked by our imploding economy would have $20,000 to shell out for a high-end scooter.

Posted by Bob | February 19, 2009 10:47 PM

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"When leisure stocks like Harley Davidson start rising, that's when we'll know it's safe to invest again."

I consider leisure stocks to be a trailing indicator. i.e. they both crash and recover after most of the market.

Study after study has shown that people who pull money out of the market after it falls will miss many of the gains after the market hits bottom. Also, if you're buying bonds now, you're buying high. If you hold them until you see equities recover, you're likely going to see your bond values fall - and sell low. While you congratulate yourself on 'successfully' timing the equities market, you're taking a hit in the bond market.

Lastly, I am not a professional analyst and post this mostly to reinforce my own financial planning, rather than offering advice to anyone else.

Posted by bsimon | February 20, 2009 8:36 AM

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>>All of the financial services companies are running ads saying yo ucan't make money by trying to time the market.

>>>>I am not a professional analyst and post this mostly to reinforce my own financial planning

The difference between the professional analysts and mortals like ourselves may not be as real as one might think.

We all know how various human foibles can contribute to negative events such as the current economic, er, situation: greed, hubris, etc.. As a professional consulting statistician, I know of another foible shared by most people, a serious overestimation of their own abilities of pattern recognition, in conjunction with their underappreciation of randomness. And sometimes, having a lot of technical ability lulls one to to be affected by this even more than most (hubris again).

In light of that, I was strongly impressed by this article I found yesterday. Why the experts missed the crash (Money magazine). One paragraph, while not expressing a message which itself suprised me, nonetheless demonstrated its point with an anecdote so compelling I repeat it here:

And like all of us, experts have a hard time with randomness. I once witnessed an experiment that pitted a classroom of Yale undergrads against a lone Norwegian rat in a T-maze. Food was put in the maze in no particular pattern, except that it was designed to end up in the left side of the "T" 60% of the time. Eventually, the rat learned always to turn left and so was rewarded 60% of the time. The students, on the other hand, fell for a variant of the "gambler's fallacy." Picture a roulette player who sees a long sequence of red and puts all his money on black because it's "due." Or more subtly, he looks for complex, alternating patterns - the same kind of mental wild-goose chase that technical stock pickers go on. That's what happened to the Yalies, who kept looking for some pattern that would predict where the food would be every time. They ended up being right just 52% of the time. Outsmarted by a rat.

Priceless. So let's not overinflate the difference between a professional analyst and an amateur one.

Several other great points, including pointing out that someone in hindsight will have "seen it coming", but that that is not a good reason to believe them the next time. The (para)phrase "Past performance may not be an indicator of future results" may be one of the most ironic understatements of our time.

Full disclosure: I did not go to Yale. :-) JZ

Posted by JohnnyZoom | February 20, 2009 12:59 PM

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