As I write today (June 6, 2013) we’ve seen the Dow Jones Industrial Average close just below 15,000 for the first time since early May when it had closed above 15,000 for the first time ever. The S & P 500 Index, a broader measure of U.S. stocks, similarly slipped back down below record levels achieved in April.
As always, there is plenty of speculation and many varied opinions as to “why.” You could watch CNBC for twenty minutes (though I don’t recommend) and probably hear at least ten probable causes and an equal number of opinions about what is going to happen next, though none of them would really serve to give you information you would or could actually use with any confidence. (“Economic forecasting exists to make astrology look respectable”… J.K. Galbraith)
I wonder (notice I didn’t say “worry”) if this is the “correction” or “pullback” that many have predicted given that we have had such a good run. If it is (or turns to have been – because we cannot know in advance) let me assure you that it is normal, it is a matter of “when” not “if”, and is not something to lose sleep over.
Instead of worrying about what the market is going to do or not do, give what follows some thought instead.
Last year, research by Putnam Investments suggested that households putting less than 10% of their salaries or income toward retirement are at risk for not meeting their retirement income needs. People saving 0% might replace only 54% of their income (assuming they are eligible for Social Security.) Saving 3% of your income might get you up to a 56% replacement ratio and those saving over 3% and up to 10% might meet up to 84% of their needs. Obviously, you’re better off saving 10% or more.
Instead of attempting to make a “move” in advance of whatever the market is going to do next, the best “investment decision” you could make might be to instead evaluate whether or not you are saving enough money in the first place. You could theoretically double your investments three times in the greatest bull market of all times and still not have enough retirement income if you’re not saving enough. Since you can’t control or predict what the market is going to do, use that energy in the more worthwhile endeavor of determining how to “allocate” more of your income toward your retirement goal.
When we do have that “correction,” the extra money you’re investing will be invested at a lower cost (remember, we like to buy things “on sale”) and the reduction to the value of your current holdings will most probably (because nothing is absolutely certain in life) be “temporary” as suggested by the entire weight of historical evidence. I think Warren Buffet is credited with saying something like “investing is simple, but not easy.” Sometimes it is obvious what is necessary to do, but are we willing to actually do it?
As always, there is plenty of speculation and many varied opinions as to “why.” You could watch CNBC for twenty minutes (though I don’t recommend) and probably hear at least ten probable causes and an equal number of opinions about what is going to happen next, though none of them would really serve to give you information you would or could actually use with any confidence. (“Economic forecasting exists to make astrology look respectable”… J.K. Galbraith)
I wonder (notice I didn’t say “worry”) if this is the “correction” or “pullback” that many have predicted given that we have had such a good run. If it is (or turns to have been – because we cannot know in advance) let me assure you that it is normal, it is a matter of “when” not “if”, and is not something to lose sleep over.
Instead of worrying about what the market is going to do or not do, give what follows some thought instead.
Last year, research by Putnam Investments suggested that households putting less than 10% of their salaries or income toward retirement are at risk for not meeting their retirement income needs. People saving 0% might replace only 54% of their income (assuming they are eligible for Social Security.) Saving 3% of your income might get you up to a 56% replacement ratio and those saving over 3% and up to 10% might meet up to 84% of their needs. Obviously, you’re better off saving 10% or more.
Instead of attempting to make a “move” in advance of whatever the market is going to do next, the best “investment decision” you could make might be to instead evaluate whether or not you are saving enough money in the first place. You could theoretically double your investments three times in the greatest bull market of all times and still not have enough retirement income if you’re not saving enough. Since you can’t control or predict what the market is going to do, use that energy in the more worthwhile endeavor of determining how to “allocate” more of your income toward your retirement goal.
When we do have that “correction,” the extra money you’re investing will be invested at a lower cost (remember, we like to buy things “on sale”) and the reduction to the value of your current holdings will most probably (because nothing is absolutely certain in life) be “temporary” as suggested by the entire weight of historical evidence. I think Warren Buffet is credited with saying something like “investing is simple, but not easy.” Sometimes it is obvious what is necessary to do, but are we willing to actually do it?
E-mail Kimber with any thoughts you may have regarding this post.