In the below quote, the items he has in quotation marks are responses I made to him that he's referencing and then responding to. Some of them may not make sense because you're only seeing one side of the conversation, but see what you think of what he says anyway:Oh boy. IF "buy and hold" were not speculation then I could buy a put option ten years in the future cheaper than I could buy one for next month.
Pension funds that invested in stocks are in ruins. Pension funds that were in bonds run surpluses.
Stocks are higher risk than bonds and only have theoretical highers returns because of taxes and fees and a long list of other things that I would be glad to explain to you if you are interested.
There are very few periods of time where stocks worked for retirement. And that bubble bursts when the Baby boomers retire. What drives a stock price up in the most general sense? Dividends. Historically the dividend yields are reinvested and THAT is what drove the stock prices up. The brokerage houses and investment firms trade these stocks back and forth buying and shorting often at the same time and the crowds see the returns and rush to ad to their retirement accounts only too see them emptied by downturns. So businesses now want to put the people in control of their own pensions but humans have the extraordinary knack for buying high and selling low.
Most people will never make their own retirement according to the buy and hold strategy because they don't have the perfect time line. Many of those who retired this past year are going to have massive shortfalls and end up working in Wal-Mart.
Here is a simplistic math problem on buy and hold investing. You have start out with $100 and the market goes up 50%. Now you have $150. But before you retire the market goes down 50%. Now you have $75.
OK, lets change he timing. You have $100. The market goes down 50%. Now you have $50. So the market now goes up 50%. Now you have $75. See how you end up the same no matter which side you get in on?
So why not remove all of the risk you can at a similar return and go all highly rated bonds? I do this stuff for a living and all my retirement is in bonds. I wouldn't risk my well being in my old age to equities. Have you heard the saying that the smart money is in bonds? The dirty little secret is this. Bonds actually outperform stocks and are much safer. Don't tell anyone. The bond folks like to make it seem really shrouded in complexity.
"To the tune of over 10% per year since 1926."
That is theoretical and the "real" number for actual investors is closer to 6%. But they can't "sell" you by giving the actual returns data so the go with the 10% and you buy what they are selling. I proved that the 10% is a myth with the put option. Explain to me, if the returns are so good, why a put option with a constant strike costs more the further in the future I go even if I go 30 years?
"but buying a diversified fund"
The real data shows that a fund vs a dart board vs a monkey will get the same returns on average. The fact of the matter is the longer your time frame the greater the chance of something bad happening to your investments. Try to find a 30 year period that you didn't have to have perfect timing to enjoy the results that you are touting. Don't take too long looking because there is only one and very few people caught that perfect wave.
You are giving me the standard sales boilerplate that brokers give to investors to ensure more money coming into the game for the big boys to play with and not actually produce anything.
"and interest rates will begin to decline"
I told you "zero-coupon non-callable". That is how you get an equal return and lower risk.
"individual companies and even sectors will fail"
Buy bonds that can't fail unless the world goes boom. Face it, if the world goes boom then we are all in a world of #$%^. I will point you in the right direction. Start in the state of Texas.
"A good rule of thumb for an average investment portfolio? Age in bonds"
That is terrible advice. Absolutely terrible. If you knew what really going down on the trading floors you would be petrified of stocks as a retirement tool. Do you honestly think that these crashes just happen and that the money just disappears? The reason the stocks go up is not the production (and I can show you why) but because they pump the market and get more investors to pour money in. They move it up and down at will and then when the new money coming in slows because production is slowing there is a crash and investors can't get their money back because there was "wealth destruction". But here is a secret...it is all BS. When you make a stock bet and lose, SOMEONE ELSE WINS. The house.
Greedy money goes for the promise of the higher return (as you are doing and you parrot their sales pitch). But there is only a higher return if the companies actually produce something new. There has to be constant development of new products. But the products have to have a practical use and add to the wealth of the nation materially.
But the greedy money seeking the higher returns was promised percentage points on financial instruments. They were shown this fund or the other. For every successful fund there are hundreds of failures from the same group. And when an anomaly occurs in the market the quickly retro fit a plan and explain how their models forecast whatever returns and the greedy people buy it. So the financials siphon off some of the money from, say, manufacturing or pharma, with this promise of a higher return. But just as the chemical company has to come up with something new so do the financials.
Well a little deregulation goes a long way in helping that. How? By allowing them to develop new products. Before you could bet on stock, futures etc. Now through derivatives you can bet on the bets. They can securitize bad loans and put a high return advert on them and you can bet on them. But the game is tricky because the house can also bet on the bets and they will get your money in, then bet against you. Your brokerage will buy stock for you and then SHORT YOUR STOCKS. The hedge funds and investment banks securitized debt, sold tht debt to banks then bet against them.
The depleted 401Ks and pension funds did not have wealth destroyed...the free marketers redistributed it to themselves.
"I don't think there's a better method out there for retirement investing"
I gave you one. 100% bonds is proven to be the soundest investment and very little can destroy your golden years. You only get one shot at this. Don't be played by the gamers. "Buy and hold" is the worst thing you could possibly do with your money because the longer you hold the bigger chance you are going to lose. When done right you can get the same or better return from bonds at much lower risk. That is why the smart money is in bonds.
"That $825,000 should last them several years at which time, their 35% in stocks should have appreciated already."
That is a big assumption on your part. I bet it will not happen over the next 7 years. If I am right then what?
"That's flat-out wrong."
I guarantee you my portfolio is outperforming yours. Guarantee it!
"Would you have made such an outrageous claim in 1999?"
I would have done as I have done now and made the timing argument. How many started in 1982 and retired in 1999? Oh to be that lucky. How about those that retired in 1988? 2001? 2007? How about those that bought and held over that 30 year period where the market stayed around 1000?
In case you haven't noticed the catalyst for higher stocks was high dividends from the big companies. That dynamic is gone and it is a wise man who understands what that means and why stocks are now a very bad idea and were only a good idea before if you were lucky enough to have perfect timing. Think about the dividend remark I just made. It could be worth lots of money if you understand it.
I am not trying to sell you any services like a broker. I have nothing personal to gain by giving you this information. But I know the game very well and I think it is immoral what they are doing by pumping your head full of the stocks. You repeat the mantra well but you don't understand how you are being played. Past performance is one thing but they are very selective in what data they give you and how they present it. And they certainly do not explain how the economy works and how their modeling is really designed to enrich them at your expense and how they really don't care if you can retire or not when that time comes. Why? Because there will be another truck load of sheep to shear and they know that the voice of people like me who used to be on the inside is no match for their constant barrage of adverts and testimonials and promises of high returns. The greedy will buy it. You think that everyone who just lost lots of money in this crash is ignorant. If (or when) it ever happens to you I will be more kind.