Retirement Plan News

July 1, 2010

How to Lose Money When Stocks are up 26%

Many times in the past we have encouraged participants not to try “market timing.” Despite our advice, some participants decide to move into stocks after seeing big positive returns and then move out of stocks after seeing losses in their accounts.

During 2009, when the stock market ended at a +26% return, some participants managed to lose money in their accounts (if interested in how you did, you can run an annual statement from our retirement plan website).

How? At the end of March 2009, the stock market was -11%. For those that decided to move their money out of stocks at that time (and not move back in), they missed the +42% return during the last 9 months. Although no one knows what the stock market return will be for 2010, there is a similar opportunity to distinguish oneself as a “bad investor.” As of this writing, the stock market is down -2%, but has been at -5%.

What are the Professionals Saying?

  • Bernanke doesn’t expect another U.S. recession.
  • Expect more market volatility (one day up 2%, next day down 2.5%)
  • Bond funds see signs of a bubble (remember tech bubble and real estate bubble)
  • We’re keeping an over-weight in stocks due to belief that a cyclical recovery will be stronger than believed at this time.
  • We regard the current period of stock market weakness as an opportunity

What are Papers Reporting?

  • Markets Prepare for a Week of Turmoil
  • Stocks Reel as Hiring Slows, Crisis in Hungary
  • Dows’ Worst May Since ‘40
  • Slowdown Fears Punish Markets World-Wide

What we Think

The stock market’s short-term performance may be based on the economy, but its long-term performance is based solely on the ability of companies to make a profit. We believe that companies in the U.S. will continue to find ways to make profits in the future and that investments in that future will be rewarded.

Thoughts on Social Security

  • In the 2010 version of your Annual Social Security Statement, they (Social Security) are suggesting that you save for your retirement and “the easiest way to save is through your job”. Wonder why they’re suggesting you save?
  • The retirement age for an 18 year old is 67. The life expectancy is 78. That’s 11 years of collecting Social Security benefits. But if you reach age 67, your life expectancy is another 18 years to collect benefits. (It pays to live longer.)
  • 32% think Social Security will provide a significant source of retirement income. But in 2009, the average monthly benefit was $1,153 or $13,836 per year. The minimum wage of $7.25 per hour results in about $14,500 per year if working full time. Therefore, 1/3 of Americans are planning on a retirement lifestyle less than minimum wage.

What to Do

  • If you’re under age 30, commit to contributing 10% of your earnings toward retirement during your working career.
  • If you’re older, you may need to contribute more and be more aggressive on investing.
  • It may be necessary to review your spending habits to save more – eating out? new i pod? new car?
  • Don’t cash in if given the opportunity. Early withdrawal penalties and taxes along with loss of compounding balances are too severe.

Other Considerations

  • Make your decisions early. A study showed older adults make more financial mistakes with decisions, declining around age 53.
  • If you make financial mistakes, blame it on your parents. A study shows 33-45% of investor behavior is genetic.
  • Staying healthy costs more in retirement. At age 80, healthy people have a 29% longer life expectancy than the unhealthy.
  • A study shows how to need less for retirement - bad habits (smoking, drinking too much, inactivity and poor diet) can age someone by 12 years.

Helping Out: Our job is to make sure you understand how to get the most out of your plan. We can help with your investment choices and answer your questions on how the plan works. Give us a call.

  • Remember - investment changes or current account values can be obtained through our website at www.gsb.com. If you would prefer to speak to an Employee Benefits Representative, please call 1-888-729-8787 during business hours. Also remember, if you want to make an investment change, there are TWO types of monies to change: future contributions and existing balances.

    The comments above do not represent a recommendation to buy or sell any investment.  Such decisions should only be made in the context of each investor's total circumstances and goals, and past performance is never a guarantee or forecast of future result  plus investments are not government-insured nor are they guaranteed in any way by Glenview State Bank.