The Financial Journey

[AR]

We should not let the weekend pass without noting that on Friday the Dow Jones Industrial Average closed at a record high of 16,064, andthe S&P 500 also hit a record of 1,804. The Dow's closing marked the 41st record high for 2013. More importantly, these averages stand at 13% and 15%, respectively, above their pre-crash highs on October 9, 2007.

Could there be another crash on Monday morning? Yes. Will the market continue to fluctuate with up years and down years? Yes. Generally, will equity (stock) investments continue to be the best investments over long time horizons as they have been since time immemorial? In all likelihood.

Still, over 50% of Americans' "investments" are in cash. Of course, these are not investments, they are savings, and are virtually guaranteed to continue to lose money due to interest rate risk and inflation risk.

Should everyone have a significant cash cushion for emergencies? Yes. Should 50% of the nation's investable assets be under a mattress? No.

Something like 80% of the nation's actual investments (other than cash) are owned by the richest 10% of Americans. Part of the reason is that many of the rest literally can't afford to invest. But another part of the reason is that many who can afford to take prudent risks to make their money grow simply won't do it, and remain in cash.

There are many reasons why the middle class is disappearing, and this is one of them. Only a tiny percentage of Americans have ever taken the trouble to learn the rules of money and apply them in a long-term, unemotional way. Those who have gained this understanding early in life have done very well in good times and in bad, but it's a curriculum that almost nobody teaches.

Where are you in your financial journey?

--I live paycheck-to-paycheck, so investing in anything is out of the question.

--I'm in cash because I'm frightened to be anywhere else.

--I'm a "trader," and play the market based on my own research and hunches.

--I'm in bonds, because they're "safe."

--I'm in commodities, because things like gold are solid, substantial and real. And my favorite radio talk show host recommends them.

--I own positions in a wide variety of asset classes, which I continually rebalance based on my investment goals, age and risk tolerance. I will never have a perfect portfolio and make a "killing," but I will never be in a position to lose it all either. My investment philosophy is "no big bets."

--Some combination.

--Something else entirely.

[rollerdonna]

I am broke.

[venice]

Don't ever get divorced

[AR]

Originally Posted by venice

Don't ever get divorced

Funny, but in a way, not so much. I was reading a study the other day that pinpoints what they claim are the four most fundamental criteria for building and maintaining wealth. They are:

1. Get a college education.
2. Get and keep a job.
3. Marry someone with a college education who gets and keeps a job, and stay married.
4. Be white.

A short, and blunt, list. I don't claim it's universally true, but there are aspects of it that are certainly understandable.

[Donna]

I try to be smart about investing and also like some cash on hand, in case of emergency....I put 12% of my weekly pay into a 401K and a few dollars in a savings, if you don't see it, you will no miss it....seems to work....I also didn't sell off all my mutual funds, stocks 5 years ago and I am glad I didn't, they have finally bounced back and are back to earning....

[AR]

Originally Posted by Donna

I try to be smart about investing and also like some cash on hand, in case of emergency....I put 12% of my weekly pay into a 401K and a few dollars in a savings, if you don't see it, you will no miss it....seems to work....I also didn't sell off all my mutual funds, stocks 5 years ago and I am glad I didn't, they have finally bounced back and are back to earning....

You went to class and paid attention!!

[canuckity]

Where I was employed we had to put money into a pension plan. There was no 'opting out'. In retirement I am now getting a pension that is indexed to the cost of living. As well my wife and myself have money in investments (primarily mutual funds) and they are currently providing returns well above the inflation rate. I feel very fortunate.

[venice]

1 for 4

[ship2shore]

for me it's

- something else entirely

[ship2shore]

AR: You forgot:

- wait for your parents to die, and inherit it all (no job or education required)
- or you can put it all on red seven and let the wheel spin in all its myriad ways...
- or you can run 5 keys in from Colombia

But seriously, inheriting the shizzle seems the way to go these days, (provided the parents have a good tax strategy and avoid probate).

I'm certainly not giving my kids power of attorney over my estate, though....

[thecruisequeen]

Originally Posted by ship2shore

I'm certainly not giving my kids power of attorney over my estate, though....

Power of attorney or selling the house to the kids for $1.00 is a good idea. I know way too many older people that down the road needed a nursing home and the nursing home drained them of all their assets. Nursing home in my area are $10,000 + a month.

Hiding your assets as one gets older is the way to go. Close bank accounts and go old school with money under the mattress . Bank safety deposit box is good too.

Nursing home will drain you out leaving you only a few thousand for your funeral..

Selling the house to the kids there is a 5 year wait period so if you need a nursing home within the first 5 years they have the right to put a lien on the house even if the house is in the kids names.

Many older people end up in a nursing home especially if their health is getting worse and it is difficult to impossible to care for them at home.

Nursing homes love pensions, bank accounts and real estate!

[Kuki]

My long term plan had been to eventually sell off the equity I have in Mrs Kuki.

A bad plan as it happens. Can no longer advertise her as like new. Now have to go with As Is.

[AR]

Originally Posted by Kuki

My long term plan had been to eventually sell off the equity I have in Mrs Kuki.

A bad plan as it happens. Can no longer advertise her as like new. Now have to go with As Is.

Chapter 11 of my new book will be titled "When assets become liabilities."

[AR]

Originally Posted by thecruisequeen

Nursing homes love pensions, bank accounts and real estate!

Yeah, they do, but there are lots of ways to skin that cat. The 2013 national average for nursing homes is about $80k annually and for assisted living about half that. So your 120k annually is at the high end. But it's still a huge consideration. Nationally, two thirds of nursing home costs are paid my Medicaid, which basically means the person is broke except for whatever assets they've protected. And the rules for what you can protect vary by state. So there's no single "good idea" that works best everywhere.

Any legitimate financial plan will factor in this issue, and as I say, there is a wide variety of solutions, including insurance (of various kinds) and many other approaches as well.

One thing is universally true: if you have a good lifetime financial plan and if you put it into effect reasonably early, the more options you'll have.

[venice]

CQ...excellent advise...we went thru that situation with my Mom...sounds like you lived thru it also with a parent..don't forget to have a living trust in place along with your will...my Son helped me to prepare a written succession plan for my few assests

I have designated that my executor ensure that I have a traditional New Orleans 2nd Line parade at my "Going Home Ceremony" and that CQ be invited ( I put aside funds for her to ride Amtrak one way to New Orleans ) so she can learn how to 2nd Line

[AR]

Originally Posted by ship2shore

AR: You forgot:

- wait for your parents to die, and inherit it all (no job or education required)

I inherited a lifetime of love and memories. That was plenty.

Originally Posted by ship2shore

- or you can put it all on red seven and let the wheel spin in all its myriad ways...

Last time I was in Vegas I saw a guy on the roof of Caesar's threatening to jump because he'd lost it all. The firemen were setting up nets. Inside at the sports book you could bet him to jump and live. . .jump and die. . .what time he'll jump. . .not jump, etc. Basically anything you could quantify they'd take your bet. Seriously.

Originally Posted by ship2shore

- or you can run 5 keys in from Colombia

I'd rather jump off Caesar's roof.

[canuckity]

With my mother and my mother-in-law still alive I will inherit their..."final expenses."

[AR]

Originally Posted by canuckity

With my mother and my mother-in-law still alive I will inherit their..."final expenses."

All too common a situation.

[AR]

I just saw something that floored me. I've always known that many Americans habitually act counter to their best financial interests, and that many of these blunders are "unforced errors." But emotions get in the way and perpetually lead people to--one way or another--buy high and sell low.

I noted in the OP that half of the nation's "investments" are in cash, meaning they're not investments at all, they're savings.

But now I see the news that stock ownership among Americans is at a record low. Just 52% of adults say that they or their spouse own any stocks, either individually or through funds. That's according to Gallup, which began tracking this in 1998.


The sharpest decline is among middle-income Americans, classified as those earning between $30,000 and $75,000. In 2008, about 66% of middle class Americans owned stocks, compared to just 50% now.

So should everybody who sold into the 2008 crash get back into stocks now? Well, by definition, that would be "buying high," wouldn't it? On the other hand, does it make sense to steadfastly avoid the one asset class that has had the best and most consistent gains decade after decade, despite the crashes? I don't know. I do know that those who buy now had really better do their homework, because I have no idea how long the current bull will run. A conundrum.

And if you haven't yet seen it, I think everyone should watch this short "chalk talk."

Wealth Inequality in America - YouTube