4 ms·

I don't like this blaming of people for not having foresight. You can do everything right and still lose it all. Let's say he started a 401K in his 20s and sli

by yardie 8y ago

I don't like this blaming of people for not having foresight. You can do everything right and still lose it all. Let's say he started a 401K in his 20s and slid the meter all the way to right (riskier investments). He would have encountered: - 1980 recession, the one that got Reagan elected. - 1990 recession, the one that got Clinton elected. - 2001 recession, this one mainly affected tech workers. - 2008 recession, this is the major one. The GFC in 2008 have left a lot of older workers in the lurch. Many are now coming up on retirement and they were heavily invested in the stocks and not so much bonds. In my case my parents have lost $80k in their 401K. They have only just recovered. And that example is just 401k, IRA. We won't even get into other matters such as health, divorce, property, lawsuits, failed businesses.

bb88 8y ago
It wasn't until 2010 that pre-existing conditions were allowed in health insurance.
maerF0x0 8y ago
I see your point, however we all should have long term savings that we do not touch, even if things are falling apart. That used to be how pensions were. Also keep in mind this guy is in Canada and the GFC was not nearly as severe as in the USA.
- gameswithgo 8y ago
  we should also have our kids in a good school which costs a ton of money is america, either in form of expensive house or private school. then we are supposed to pay for college. we are supposed to have good health insurance for our family. there are a lot of things we are supposed to do and not everyone can afford to do them all.
- shakna 8y ago
  Should, not do. The household savings rate in Canada is quite awful [0], and is currently at the lowest rate in their recorded history. The US, where household savings are known to be bad, and it was recently seen how awful it was with government workers unable to pay for food, is at 6%. Canda is 0.8%. [0] https://tradingeconomics.com/canada/personal-savings https://tradingeconomics.com/canada/personal-savings
- wolco 8y ago
  Canada has lower salaries and higher taxes resulting in lower savings. But in a year should have cpp/old age.
  - fleur-de-lotus 8y ago
    Higher taxes is a form of compulsory savings. If they get sick, they don't go bankrupt.
jorblumesea 8y ago
If you had a 100% stock allocation for your 401k, you still would be fine, provided you picked broad market indexes. In fact, you'd have beaten most other portfolios. It's not that 100% stocks doesn't give you long term return, on a 30 year spread, it gives better returns (although more volatile) than more balanced portfolios. 10% bonds, while you're young, is mostly just to keep you from freaking out and selling at a low point. If you have an iron will, there's nothing mathematically wrong with that level of risk. My guess is there's more to this story than poor allocation. Some really good Bogleheads discussion here: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=196011 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=196011
- matz1 8y ago
  I think its considerably easier now to not freak out when the market crash but back in the 80s ?
  - jorblumesea 8y ago
    Perhaps, but the financial world is so much more complex now. All sorts of crypto currencies, tens of thousands of EFTs and index funds. Lots of FUD via social media and the internet. A million and one ways to lose your money. That being said, indexing is common now but Active was more common in the 80s, so who knows how much money was lost on ineffective managers.
asdfasgasdgasdg 8y ago
If he started in the eighties and contributed even a third of the limit, he'd be quite wealthy now even with the setbacks you mentioned. I've only been contributing since '07 and I'm at nearly $700k in my 401k. Now, the information wasn't as easily available about how to properly invest back then, and I don't necessarily blame the guy for it. Not necessarily, but there is still probably a better than even chance that he has mismanaged his money, as so many do. Doesn't mean he should have to suffer, though.
- MSM 8y ago
  How is your 401k invested? Contributing the maximum since 2007 would only give you (~187k @ 17k/yr average) and I don't see how you could have almost quadrupled that with anything but the riskiest of investments.
  - jorblumesea 8y ago
    It's not uncommon to hold additional investment accounts outside of your 401k. So more than likely, YoY investment was close to 30-40k including 18k pre tax.
    - deleted 8y ago
      [deleted]
  - asdfasgasdgasdg 8y ago
    OK, I made an error above. Thanks for catching it. Yes, I have somewhat overstated the benefits of saving in a 401k. In my defense, it's been two years since I last fiddled with my settings, so I had lost track of what was what. Still, let me explain my mistake. 1. My employer matches 50% of my contribution up to the cap. Not entirely uncommon at big tech cos, but maybe less common in smaller enterprises. 2. I also did $50k of in-plan conversions over the last two years. After you take all those sources out (and the resulting investment proceeds from the funds from those sources), my total is only $400k. I do still think it is correct that someone investing ($2019)5k/y since the 80s would have generated a sizable nest egg by now, but my own experience does not make that case as strongly as I had thought. Actually, when I run it through a calculator assuming 5% total returns, it looks like that hypothetical person only saves about $700k. Which is enough to live a reasonably good life in retirement, but not marvelous wealth by any stretch.
graeme 8y ago
If you don't sell the lows, a portfolio would still be up a lot over that time period. I think even buying at the peaks you'd be up.
sokoloff 8y ago
People who invested continuously throughout their working career have done just fine, even with the headwinds you list https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-w...
zhte415 8y ago
And to add: low interest rates that tend to follow crashes, especially after the 2008 crash, make purchase of annuities even more expensive.

by yardie 8y ago

bb88 8y ago

It wasn't until 2010 that pre-existing conditions were allowed in health insurance.

maerF0x0 8y ago

I see your point, however we all should have long term savings that we do not touch, even if things are falling apart. That used to be how pensions were. Also keep in mind this guy is in Canada and the GFC was not nearly as severe as in the USA.

gameswithgo 8y ago
we should also have our kids in a good school which costs a ton of money is america, either in form of expensive house or private school. then we are supposed to pay for college. we are supposed to have good health insurance for our family. there are a lot of things we are supposed to do and not everyone can afford to do them all.
shakna 8y ago
Should, not do. The household savings rate in Canada is quite awful [0], and is currently at the lowest rate in their recorded history. The US, where household savings are known to be bad, and it was recently seen how awful it was with government workers unable to pay for food, is at 6%. Canda is 0.8%. [0] https://tradingeconomics.com/canada/personal-savings https://tradingeconomics.com/canada/personal-savings
wolco 8y ago
Canada has lower salaries and higher taxes resulting in lower savings. But in a year should have cpp/old age.
- fleur-de-lotus 8y ago
  Higher taxes is a form of compulsory savings. If they get sick, they don't go bankrupt.

jorblumesea 8y ago

If you had a 100% stock allocation for your 401k, you still would be fine, provided you picked broad market indexes. In fact, you'd have beaten most other portfolios. It's not that 100% stocks doesn't give you long term return, on a 30 year spread, it gives better returns (although more volatile) than more balanced portfolios. 10% bonds, while you're young, is mostly just to keep you from freaking out and selling at a low point. If you have an iron will, there's nothing mathematically wrong with that level of risk. My guess is there's more to this story than poor allocation. Some really good Bogleheads discussion here: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=196011 https://www.bogleheads.org/forum/viewtopic.php?f=10&t=196011

matz1 8y ago
I think its considerably easier now to not freak out when the market crash but back in the 80s ?
- jorblumesea 8y ago
  Perhaps, but the financial world is so much more complex now. All sorts of crypto currencies, tens of thousands of EFTs and index funds. Lots of FUD via social media and the internet. A million and one ways to lose your money. That being said, indexing is common now but Active was more common in the 80s, so who knows how much money was lost on ineffective managers.

asdfasgasdgasdg 8y ago

If he started in the eighties and contributed even a third of the limit, he'd be quite wealthy now even with the setbacks you mentioned. I've only been contributing since '07 and I'm at nearly $700k in my 401k. Now, the information wasn't as easily available about how to properly invest back then, and I don't necessarily blame the guy for it. Not necessarily, but there is still probably a better than even chance that he has mismanaged his money, as so many do. Doesn't mean he should have to suffer, though.

MSM 8y ago
How is your 401k invested? Contributing the maximum since 2007 would only give you (~187k @ 17k/yr average) and I don't see how you could have almost quadrupled that with anything but the riskiest of investments.
- jorblumesea 8y ago
  It's not uncommon to hold additional investment accounts outside of your 401k. So more than likely, YoY investment was close to 30-40k including 18k pre tax.
  - deleted 8y ago
    [deleted]
- asdfasgasdgasdg 8y ago
  OK, I made an error above. Thanks for catching it. Yes, I have somewhat overstated the benefits of saving in a 401k. In my defense, it's been two years since I last fiddled with my settings, so I had lost track of what was what. Still, let me explain my mistake. 1. My employer matches 50% of my contribution up to the cap. Not entirely uncommon at big tech cos, but maybe less common in smaller enterprises. 2. I also did $50k of in-plan conversions over the last two years. After you take all those sources out (and the resulting investment proceeds from the funds from those sources), my total is only $400k. I do still think it is correct that someone investing ($2019)5k/y since the 80s would have generated a sizable nest egg by now, but my own experience does not make that case as strongly as I had thought. Actually, when I run it through a calculator assuming 5% total returns, it looks like that hypothetical person only saves about $700k. Which is enough to live a reasonably good life in retirement, but not marvelous wealth by any stretch.

graeme 8y ago

If you don't sell the lows, a portfolio would still be up a lot over that time period. I think even buying at the peaks you'd be up.

sokoloff 8y ago

People who invested continuously throughout their working career have done just fine, even with the headwinds you list https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-w...

zhte415 8y ago

And to add: low interest rates that tend to follow crashes, especially after the 2008 crash, make purchase of annuities even more expensive.