“Things in the U.S. aren’t nearly as bad now as they were back in 2008 and early 2009, but don’t try and tell the retail investor that. They’re truly spooked.”

-Justin Walters, co-founder of Bespoke Investment Group.

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Here we are 12 years into a secular bear market, and the concern amongst investors is capital preservation and risk management. Indeed, as the nearby cover of this weeks Barron’s is an article about the fear amongst investors (click for larger version). It may be the single most Bullish thing I’ve seen this year.

I find some of this hilarious:

• A recent survey conducted by Investment News found just 43.6% of financial advisors planned to increase their clients’ allocation to stocks this year, down from 63.4% at the start of 2011;

• A survey by the Yale School of Management showed a marked decline among investors who felt confident there wouldn’t be a stock-market crash over the next six months. The outlook was especially grim among individual investors, who seemed as worried about a crash as at the height of the financial crisis.

• Notwithstanding the downgrade of U.S. debt, investors bent on capital preservation are buying enough Treasuries to drive the benchmark yield on 10-year notes to below 2%.

• Of more than 300 new exchange-traded funds launched in 2011, the two most popular by far were conservative strategies that steered investors toward stability and capital preservation.

• Risk aversion is particularly acute among “Generation Y” investors born after 1980, who have decades to go before they retire but are especially reluctant to invest.

These data points show the depth of risk aversion amongst the investor class.

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Nervous Investors

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click for larger graphic

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Source:
Just Don’t Lose It!
KOPIN TAN
Barron’s, January 28, 2012
http://online.barrons.com/article/SB50001424052748704895604577178933290614156.html

Category: Investing, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “Barron’s Cover: Don’t Lose My Money”

  1. Orange14 says:

    OT – BR, Mark Zandi has a great piece in the WaPo today about Fannie and Freddie’s non-roll in the housing meltdown: http://www.washingtonpost.com/realestate/fannie-and-freddie-dont-deserve-blame-for-bubble/2012/01/23/gIQAn3LZMQ_story.html?hpid=z3 You might want to link it in your next set of readings.

  2. ThreeFold Commonwealth says:

    Magazine Cover Buy signal. When to sell….Barron’s Cover Dow At New High Next Stop 20,000/

  3. jeffg says:

    I must admit that I never can understand these articles about being “underinvested”. Right now, every share of stock in the world is owned by someone. If the market went up 25%, every share would still be owned by someone, and there would still be “cash on the sidelines”, since people who bought the 25% run up took their cash off their sidelines and bought stock from someone who put the cash onto their sidelines. It seems that the whole argument is just a big farce.

  4. dougc says:

    Don’t know if barrons is a good contrary indicator, at the start of the biggest bull run, in 1981 , their cover was a huge bull.

  5. gkm says:

    I have one friend who said this week he sees bullish signs in commodity stocks. He has been 100% wrong to my knowledge for stock picking. I had another friend lament he’s been sitting in cash for far too long and wondered if I would invest for him. Finally another this week called to ask if we could sit down over beer to talk about setting up an account to trade stocks. What does this all say?

  6. MaxMax says:

    I’m waiting for Europe to implode before I wade back in.

  7. rd says:

    A few points to make:

    1. The Generation Y folks are facing high unemployment and high student debt. I assume many of them are struggling to put away 6 months or so of cash to buffer them in a personal financial shock. Many of them are probably in jobs without health insurance or pension vehicles. Why would they be heavily into stocks right now?

    2. The baby boom generation is moving into retirement. One would expect that their equity allocations in their portfolios would be declining to the 30% to 65% range. Who should be picking up their slack? This one has always been a big mystery to me starting a decade ago when boomers kept saying their house was going to be their retirement savings. My question over the past deace was “Who was going to buy it from them considering they were in a large population demographic bulge selling their homes?”

    3. MF Global. The mainstream doesn’t really understand the details of it, but it is simply further proof that the system is rigged against the small investors by both the large financial institutions and the regulators. The small investors know that something has gone horribly wrong in the trustworthiness of the financial system.

    4. HFT. The small investor knows that the big boys are out there with howitzers. They also know that much of the volatility is just due to some computers arguing it out, not anything fundamental.

    5. Inside information. It has become increasingly clear to the small investor that the large investors and traders have much better inside information and regulatory capture. Even the government institutions have been outed as providing preferential treatment and information to the large, well-connected players, leaving the little guy to take the losses.

    6. Loss guarantees. The message has been received loud and clear that the little guy is on his own, especially with all of the talk about cutting the budget line items that send money to the little guy. Meanwhile, they know that there is a fire house of “liquidity” (i.e. money) available to the large players from the government.

    In the end, I think these trends will be bullish at some point, but not until many of the larger players are cut down to size first.

  8. SOP says:

    I think the “Just Don’t Lose It” Stage comes just before capitulation and the “F*nk it, I’m outta here” stage.

    “It may be the single most Bullish thing I’ve seen this year… I find some of this hilarious:”

    Whistling past the graveyard ????

  9. “These data points show the depth of risk aversion amongst the investor class.”

    But a look at overall household’s allocation to equities show we have a long way to go for it to reflect true risk aversion from a historical perspective. From 1975-1985 investors allocation to “cash and equivalents” was high 40%s. Now about 27%. Allocation to equities was high 20%s to low 30%s. Now allocation to equities is low 40%s. That is not what true risk aversion looks like.

    And Why Are U.S. Households So Fascinated With Stocks?
    http://www.wallstreetrant.com/2012/01/who-owns-worlds-financial-assets-and.html

    ~~~

    BR: Agreed. Whenever I show my secular bear market charts, I use 1966-82 as an example.

    I usually get asked when this bear market ends, I always give the same answer: “Someday between 2018 and next Tuesday, unless we turn into Japan.”

  10. carleric says:

    Anyone who makes investment decisions based on some magazine cover desperately needs help in managing their money. The way the game is rigged it comes as no surprize that people either don’t want to lose their funds to crooks or just want to get the f**k away from all the clowns, theives and charalatans.

  11. Robespierre says:

    @rd

    %100 in agreement. You save me all that typing. Thanks!

    You may also add that the Obama/DoJ “Task force” is staffed with 10 FBI agents. The one from Bill Black (S&L) was in the 100s. So basically this is the way for the Government-Bankers_regulators troika to say that the retail investor can go to hell we are here to protect the big bankers.

  12. Over the last 2-3 months, most economic indicators either continued on the right path, or turned positive. I think we have, at least, one more year of the bull market ahead of us… I think this year might even be the strongest year since 2009 for the equities. Currently, economic indicators are pointing towards exactly that scenario. ~Cheers~

  13. rd says:

    I forgot to put one more point in.

    7. The past couple of decades have seen the percentage of wealth held by the top 1% to 10% increase dramatically with similar income increases. To the policy makers, this is a feature, not a bug of the system. This simply reduces the amount of money that the unwashed masses can have in capital. That scarcer capital makes it more important to them to hold it in less risky asset classes (whatever that means these days). One old adage that many people are taking to heart is that it is more important not to die poor than to live richly. The less money you have set aside, the less likely it is going to be in equities. The recent income and wealth redistribution reduces the number of equity participants.

  14. RW says:

    @jeffg, there is probably plenty of cash waiting in the wings via credit, unmonetized assets, cash in the mattress, the government printing press, etc.

    John Hussman frequently makes the “savings-must-equal-investment” argument when he is writing about macroeconomic issues and so do a lot of other very smart, knowledgeable folks; e.g., Eugene Fama, John Cochran, Scott Sumner, Greg Mankiw, et al.

    But it is probably incorrect, the result of a fundamental confusion between an accounting identity (a bookkeeping law) and a real-world behavior or condition.

    Brad Delong lays out the key differences:

    “behavioral relationships–things that tell you how people will change their behavior to respond to changes in the economic environment and economic policy;

    equilibrium conditions–things that tell you what configurations of the economic environment are consistent and are not rapidly-changing out-of-equilibrium phenomena seen for an eyeblink of time, if that long; and

    accounting identities–things true by the metaphysical necessity of the definitions that are devoid of interesting substantive implications.”

    Accounting identities are not an explanation, they are a tracking mechanism. The statement that “savings must equal investment” arises by definition from an axiomatic relationship but in empirical terms it is simply “theoretically ungrammatical” as David Glasner phrases it.

    Shorter version: the way we keep track of economic events does not dictate those events themselves; the map is not the territory.

  15. rd says:

    A recent survey conducted by Investment News found just 43.6% of financial advisors planned to increase their clients’ allocation to stocks this year, down from 63.4% at the start of 2011

    We have had a nearly three year bull run that has doubled the stock market. Long-term valuation keys such as Shiller’s CAPE, Tobin’s Q, and near record low dividend yields show that the stock market is probably significantly over-valued. Is this the environment where one would want financial advisors to start upping their clients’ equities exposure, especially as many of them are probably nearing or in retirement?

    Could the traditional dumb money be turning into the smart money?

    Do we have the major financial firms simply assuming that Uncle Sam will be there to pick them up the floor and refill their glasses the next time they have a severe bout of financial drunkenness? Are other major institutional players, like pension funds, simply following Fuld’s advice that they have to keep dancing in equities until the music stops because it is the only way they can keep their models from showing horrendous underfunding?

    Is a financial and economic environment where the Fed has to keep their foot firmly on the floor with ZIRP and QE just to prevent major depression a good long-term investing environment? Where will the future coprorate earnings come from if everybody remains unemployed? How will equities do if they need to compete with 4% cash and 6% bond interest rates? Will they plunge 50% or more in response to that?

  16. Winston Munn says:

    I’m not certain how accurate this point is: “Risk aversion is particularly acute among ‘Generation Y’ investors born after 1980, who have decades to go before they retire but are especially reluctant to invest.”

    Don’t you need investment capital in order to invest?

  17. b_thunder says:

    I’d love Barry to elaborate exactly why he finds the reluctance of the “mom & pop investors” to invest so **hilarious** ?

    But as a representative of the “mom & pop investor” class and a (borderline) Y Generation, let me list some reasons why i’m reluctant to go long with more than 30-40%

    1. If you cannot monitor your portfolio 24/7 and be ready and able to sell 80% in 80 seconds – that 10% that your portfolio so painfully gained over last 10 months can turn into a 10% instant loss
    2. New Normal: the “invisible hand” got the turrets syndrome and jerks the market up and down with 5X amplitude of the years past. Stocks lose 70% in 8 weeks in Oct-Dec., and jump up 50% in 3 weeks in January! What the heck changes from red-hot to freezing cold and back to red hot in 3 months?
    3. A (slowly losing value) dollar in hand is better than a dollar in MF Global account
    4. What if Bernanke gets run over by a bus, has a concussion and… wakes up from a come 100% “Austrian”? What if ex-Goldmanite Draghi is set up and arrested like Strauss-Kahn and a German takes his place? What if $100billion per month money printing machines were permanently turned off? What if the machinations between central banks and within EU were forced to stop – no more swap lines, no more “cash for trash” LTROs?
    5. Yes, we’re in year 12 of what historically have been 17-18-year bear markets. But neither 2002 nor 2009 lows were real lows! Both times the Central Banks and various governments interfered. The chance of a Black Swan in stocks and the 10Yr Treasury going to 1% before this bear cycle is over are, in my opinion, greater than 50%.
    6. People finally realized that you can’t trust balance sheets of most banks, that most companies that execute buybacks do so at the top, that wall st. makes $$ on insider info, Fed handouts and what they can gain by fleecing the rest of us.

  18. ByteMe says:

    With interest rates being kept artificially low, risk is not being properly reflected in asset pricing.

    Bear markets need 3 crashes to wring out the excess. We’ve had two so far. Be ready with cash when the third one gets here… sometime in the next 5 years.

  19. donna says:

    Generation Y investors don’t invest because they have no money. You have to HIRE the kids and PAY them well before they have money to invest. America seems to have forgotten this.

  20. rd,

    with your.. January 28th, 2012 at 2:30 pm

    I hear that, but, were you not the one, a ~week ago, extolling the virtues of convincing your daughter of the benefits of ‘Investing for the Looong Term’?

    if so, how do you reconcile the two (seemingly, disparate) Ideas/Tracks?

    further, if it is–as you lay out in your 14:30 Comment–wouldn’t she be better off with, even, more “Cash/Equiv.s”?

    seems to me that the Idea–based on *Reality–that she could self-fund a 2-yr. “Sabbatical” might pay, even, better ‘dividends’..

    note: holding “Cash”/”Equivalents” comes with its own Risks, but, these Daze, what doesn’t ? ;)

  21. Barron’s also featured: “Buy the Banks” on 10/15/2011 –

    http://online.barrons.com/article/SB50001424052748704468304576627261773829164.html?reflink=wsj_redirect#articleTabs_article%3D1

    I, and many others, thought this was a perfect contra indicator. We were wrong immediate term, as well as to date. Don’t get me wrong, I”m no fan of financials, but simply because it’s on Barron’s cover page doesn’t mean it’s contra indicator.

  22. Concerned Neighbour says:

    I obviously can’t speak for every retail investor, but a major reason I’m not investing is because it’s the Fed driving the market (and all the attendant speculator front-runners), not my buy and hold neighbour down the street. And history shows that the Fed’s judgment is terrible. They’re blatantly trying to blow another bubble to repair the damage from the last one they helped inflate.

    Another reason I’m not investing is because I can’t trust anyone. No one has been held accountable from the crisis, so why should I have any confidence that the same people won’t do similar things again? There are no consequences for white collar crime in this country.

    Yet another reason is that I can’t financial statements because of the accounting shenanigans happening, some outright sanctioned by the PSAB and others not.

    There are many other reasons.

  23. constantnormal says:

    “Things in the U.S. aren’t nearly as bad now as they were back in 2008 and early 2009 …”

    As I recall, we had only begun the ZIRP back then, we had bank balance sheets that one could (rightly or wrongly) place a modicum of trust in … versus today. The levels of leverage are still extreme, the use of credit default swaps is still commonplace, about the only thing I can see balancing this is that back in the 2008-2009 years, there was a body of public trust that could be shattered. That no longer exists. People today believe that anything is possible (and it is).

    So yeah, the disappointment/fraud factor is not there, but that in itself is insufficient to build the body of trust that is necessary to lure individual investors back in a sustained push upward. But that does not mean that we cannot have a push upward, especially as we now have a concentration of wealth that is unprecedented in my lifetime, possibly in living memory. Simply put, individual investors no longer matter.

    The Fed, Goldman Sachs, JPM, and the rest of the Wall Street elite are perfectly capable of guiding the markets higher, to whatever levels they would like, via very non-market mechanisms. Sans fundamentals. Sans believability.

    Of course, this puts a cloud around the very term “markets”. Real markets require trust — or exceeding low valuations (and we are slowly getting there, as successful companies pile up exceedingly large cash hoards and rake in the profits, courtesy of foreign workers/robot workers) and a very forgiving tax policy toward corporations.

    But even if we do roar back all the way up to 2000 levels — and even beyond — that doesn’t mean that things are any better than they were in 2008-2009. I perceive (and I think I’m not alone in this) the risk to individuals being about the same now as then. Easy to believe that, when you don’t believe the silly kabuki theater that is the equities market and our economy.

    And for the record, I am pretty much fully invested. 99+%. Eating a hole in my guts in the process. And “spooked” enough to sell everything at a moment’s notice, the first time I perceive (or think I perceive) a shadow, or a movement that looks hinky.

  24. constantnormal says:

    Does anyone really think that the EU could not implode at any moment, or that the current exceedingly feeble US “recovery” could collapse into recession?

    I think the warning bells would be ringing, except that their clappers have melted from overuse …

    OTOH … can anyone see a way that the risks of global recession could suddenly be resolved? Any way in which the structural problems of the EU or the US could be easily and quickly repaired?

    I think we’re a long way from being at rock bottom, at the levels from which a further decline is ridiculous. And I also think we will get there. When, I haven’t a clue … my best guess is either in the last quarter of this year or the first quarter of 2013, when the re-elected begin demolishing all their campaign promises and fulfilling the promises made to big money campaign donors … and don’t we have some already-signed austerity programs set to begin in 2013/2014? I’d like to see a convincing argument that our recovery will be strong enough then to withstand austerity measures …

  25. mysterious eggs says:

    I’m Gen Y. I had a lot invested but took it all out before it got wiped. The penalties on the retirement accounts were miniscule compared to conceeding to whackage and “having a long term horizon”. Which is doublespeak for we need you suckers so our ponzi doesn’t collapse. I’d planned to plow it all back in when real solutions to the problems hindering recovery were on the verge of becoming mainstream: Prosecuting corruption under existing laws, criminal investigations at banks, trust busting, an honest dialogue about our over-militarized economy and masochistic subsidies*. None of that happened, so we waited. Then it just got worse. In the end, the cash went to fund projects which will hopefully generate cash flow in the future. It’s taking longer for the aggregate of society and politicians to admit how much we screwed ourselves. Once it gets sorted better plow back in because the whole charade starts from zero again and we’ll all be dead before the next wave of corruption and trust busting occurs in 2150 or so.

    *An aside, it’s fairly clear subsidized farming has created our national processed industrial food waste based diets which has caused overall health decreases leading to subsidized healthcare… wonder why costs are up to demanders but down to suppliers? Apparently every politician slept through high school economics. Yes, people have to self regulate but it’s cheaper to buy a McDonalds hamburger than to buy a piece or two of fruit. The laws of thermodynamics cry.

  26. realitician says:

    I went into stocks on the first of the year and couldn’t be more pleased. So far. The thing that makes me wary isn’t just the potential Black Swans — Europe, Iran, stuff we don’t even know that might happen — but how the markets have changed. High speed trading and the nascence of global exchanges have introduced risk in the market structure itself, as we saw in the flash crash not long ago.

    People investing on Wall Street is transitioning to computerized robots investing around the world. This is uncharted territory, and a scary place to bury your treasure chest. So I’m in for now, but I’m out on the slightest sense that it might break down. If only the markets were regulated. Oh wait, they are! Just poorly.

  27. bear_in_mind says:

    I think there’s a lot of mixed messages in the financial press over what’s deemed “trading” versus what’s “investing.” In my mind, the two are not synonymous, yet they’re all-too-frequently conflated. I seek for information on both perspectives, but it’s definitely an art to parse which is which.

    What I’d like to know is what credence / weighting you’d give such an ‘indicator.’ Surely, you wouldn’t use it for trading unless your other ducks (i.e. data) were in a row, correct?!

    Lastly, the public may not have all the same information as the wizards of Wall Street, but they’re pretty good at sensing when they’re getting the shaft.

    I suspect the average ‘retail’ investor isn’t coming back to the casino until they: 1) have a solid bulwark against the next downturn (whenever that may come); and 2) new money to place on the craps table.

    Given the unprecedented indebtedness amongst 21-49 year-olds, continued erosion in median income(s), widening income stratification and wave of Baby Boomers entering retirement, I just don’t see a stampede of retail money flowing to the NYSE / SPX. Doesn’t mean the whales, hedgies, algos and HFT won’t push the markets higher…

  28. mathman says:

    Speaking to the cover directive and to illustrate the complete absurdity of Americans Elect as a political “solution” – Jon Corzine’s name is listed as a possible candidate! Bwahaaaaaaaaaaaahaaaaaaaa!

    http://irregulartimes.com/index.php/archives/2012/01/28/nick-troianos-list-of-possible-americans-elect-presidential-candidates/

    Just what we need a “thief in chief,” or better, a “commandeerer in chief”!

  29. [...] average investor is focused on capital preservation.  (Big Picture, [...]

  30. mathman says:

    and this from http://jessescrossroadscafe.blogspot.com/2012/01/nasty-business-of-mf-global-bankruptcy.html

    The MF Global Bankruptcy Filing: Did The Regulators Sell Out the Public for JP Morgan?

  31. davefromcarolina says:

    “Another reason I’m not investing is because I can’t trust anyone. No one has been held accountable from the crisis, so why should I have any confidence that the same people won’t do similar things again? There are no consequences for white collar crime in this country.”

    I’ve been wondering when this notion would finally surface. When corruption becomes so blatant that it finally cannot be explained away (I didn’t buy Obama’s SOTU rhetoric. Did you?), people actually will respond. How they respond (putting cash under the mattress, etc.) is a separate issue.

  32. DeDude says:

    @rd

    “players, like pension funds, simply following Fuld’s advice that they have to keep dancing in equities until the music stops because it is the only way they can keep their models from showing horrendous underfunding?”

    I think that is a very important issue and one of the important pieces of collateral damage from the Fed’s policy to force negative real interest rates on safe investments. It is not just that you hurt consumption by taking income away from small conservative investors who use their investment income for consumption, you also force a risk taking onto any person or pension fund who have to get x% of return to make the numbers work. They are blowing another bubble and we all know that it is the wrong people who get hurt when a bubble collapse. Transfer of money from consumption to the investor class is the problem, not the solution.

  33. TR says:

    I second BR’s Japanese what if. If you haven’t looked at the Nikki and Jap property value graph, back decades, you outta. What was, is, and may be should always be contemplated.

  34. boveri says:

    Lots of interesting comments but mostly bearish. Next couple of weeks should be good with year-end bonuses being paid. That’s as long-term as my investing horizon goes.

  35. rd says:

    Mark E. Hoffer:

    Actually she is very frugal and has been saving a lot of money. She has close to a year’s worth of living expenses in cash available so she could ride quite a bit out, including a period of unemployment. She started off slowly in retirement accounts but has also been able to take advantage of a generous employer match in the company retirement plan. As a result, her current equity to cash ratio is probably about 40/60. That will rise over the next few years, assuming she remains employed. I wouldn’t classify this as “aggressive.”

    She has been able to get the total of her cash and retirement equity savings greater than her student loan debt now. She isn’t carrying credit card debt.

    So yes, she is investing for the long haul. However, only after taking care of the basic financial housekeeping first. Please keep in mind that her frugalness that lets much of this happen also means that she is not going to be a major “consumer driving the US economy” over the next few years by racking up credit card debt etc. I don’t think that my daughter is typical of the savings and spending habits of Generation Y.

    I am actually quite bullish for the long run (> 10 years) but first of all we need to complete washing out the excesses in the financial system and restore trust. This is likely still another 5-10 years. The greatest periods of American growth have come after periods of excess that required significant house-cleaning. My daughter’s investments are either with companies that are quite focused on the small investor or are in well-diversified Target Date funds with reasonable expense ratios. These should let her survive many of the unpleasant issues related to relying on the financial firms.

  36. rd,

    to be clear, I appreciate that your daughter (an Individual) is not, necessarily, “…typical of the savings and spending habits of Generation Y…”

    nor, was I, with..”…the Idea that she could self-fund a 2-yr. “Sabbatical” might pay, even, better ‘dividends’…”, alluding to the Idea that she “…be a major “consumer driving the US economy” over the next few years by racking up credit card debt etc…”

    was, merely, asking, especially, in Light of your #’s 2., 3., 6., & 7. (above)–~”Why be exposed, in the first place?”

    and, given..”…I am actually quite bullish for the long run (> 10 years) but first of all we need to complete washing out the excesses in the financial system and restore trust. This is likely still another 5-10 years…”

    even, if her ‘Match’ was 100% (up to 6-8% of her Salary), that’s, really, only a 50% ‘downstroke’-buffer, yes?

    see SPY chart..(since inception)

    http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Fund&symb=SPY&x=35&y=14&time=20&startdate=1%2F4%2F1999&enddate=1%2F29%2F2012&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12

    SPY:GLD chart (last 3 years)

    http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Fund&symb=SPY&x=0&y=0&time=10&startdate=1%2F4%2F1999&enddate=1%2F29%2F2012&freq=1&compidx=aaaaa%3A0&comptemptext=GLD&comp=GLD&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12

    LSS: it is, no doubt, a, potential, Quandary…though, she may care to look into “Insuring” her Assets–whether they be “Cash”, or “…investments are either with companies that are quite focused on the small investor or are in well-diversified Target Date funds with reasonable expense ratios…”

    http://communities.cboe.com/t5/Get-Your-Questions-Answered-by/I-want-to-hedge-a-100-000-portfolio-by-buying-puts-on-the-OEX/td-p/11 (as, but, one ex.)

    but, as I said, before..

    note: holding “Cash”/”Equivalents” comes with its own Risks, but, these Daze, what doesn’t ?

    and, was, really, (only) asking..”…if so, how do you reconcile the two (seemingly, disparate) Ideas/Tracks?…”
    ~

  37. rd says:

    Mark E. Hoffer:

    Cash is in FDIC-insured bank accounts. If they are not safe, then we have MUCH bigger problems requiring gold coins, canned goods, farmland, and handguns.

    The match is 100%. The deep troughs are usually around for only a relatively short period of time. If you don’t need to be tapping into funds for a long time afterwards, you don’t need to worry about those troughs. She started buying near the 2009 bottom, and continued dollar-cost averaging since then. Dips, even 60% dips, are buying opportunities for her as long as she remains employed. Getting a match in one of those dips would pay off handsomely in the long run. Most small investors lose more money trying to time markets than just riding them out. Accumulating a significant nest egg early in her life will allow her to be in a conservative stance in her 50s and 60s in case another one of these episodes arises (usually on 20-30 year cycles from end of previous one to next one)

    BTW, puts sound nice, but they require setting up brokerage accounts, learning about that aspect of the market, hoping to get good execution, and they assume that the counterparties to the puts are good in a major crisis. A small, novice investor is like a goldfish in a tankful of sharks with this stuff. Even the sharks can struggle. The big banks have been using CDS’s as put equivalents on many instruments. They would have lost their shirts in 2008-09 if the feds hadn’t taken over AIG and ordered it to pay them out at 100%.

    In the end, the one really big advantage that the small investor has is time. Setting up accounts to match our specific short and long-term horizons is the key. Most of the financial sector struggles to think longer-term than 12 months. As long as the small investor sets themselves up to be able to survive the short-term, then time is on our side for low-cost, diversified investments. Unfortunately, many people have backed themselves in to the same corner the big banks are in by carrying very large debts that dwarf their income and wipe out most or all of their asset values. Investing in the stock market is not an appropriate activity for them until the rest of their finances are cleaned up.

  38. rd,

    this..”…As long as the small investor sets themselves up to be able to survive the short-term, then time is on our side for low-cost, diversified investments. Unfortunately, many people have backed themselves in to the same corner the big banks are in by carrying very large debts that dwarf their income and wipe out most or all of their asset values. Investing in the stock market is not an appropriate activity for them until the rest of their finances are cleaned up…”

    is ‘what is up’~

    esp. “…Investing in the stock market is not an appropriate activity for them until the rest of their finances are cleaned up…”

    though, further, w/ your #3. (above), that type of ‘escapade’ puts many Vehicles ‘at Risk’ (political), including 401(k)-style Accounts..

    as you were saying, “…then we have MUCH bigger problems…”

    I wonder if We give that enough thought, or is it, just, easier to dismiss the notion(s) ?

    one thing is ‘for sure’ — fiat Currency makes all ‘Wealth’ a “Political Creature”..
    ~~

    tangentially..

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus-ns-aaf&v%3Aproject=clusty&query=Newt+Adelson

  39. rd says:

    Mark E. Hoffer:

    “I wonder if We give that enough thought, or is it, just, easier to dismiss the notion(s) ?”

    Things are never as stable as people assume them to be. Major wars, collapses etc. take out societies and financial systems on a fairly regular basis. There were probably not more than a couple of dozen people in the summer of 1914 who could conceive of what 1924 would look like. This repeated itself only two decades later. Most major economies in Europe collapsed twice in a century.

    You can’t ensure survival in these types of scenarios by doing things within the existing financial system, as it may largely cease to exist to the point that the currency itself may be replaced. A put only has value if there is a counterparty that can pay off in a currency worth something.

    So, in the end we have to believe in FDIC and 401ks to about an 80% to 90% lifetime probability of success and continuance. The other 10% to 20% of potential failure due to financial system and societal collapse is an “out of the box” problem and solution. We have the advantage in North America of very large physical moats that dramatically reduce the probability of things like invading armies swishing back and forth over us, so we have been fortunate to not have major wars on our soil since the Civil War. However, there are still many other potential forces out there. Ultimately, things like increased leverage by banks, increased government debt, and increasing income inequality raises the probability of instabilities that can spin out of control. Civil insurrections tend not to happen in societies with high employment and well distributed income and wealth.

  40. rd,

    with..”…You can’t ensure survival in these types of scenarios by doing things within the existing financial system, as it may largely cease to exist to the point that the currency itself may be replaced. A put only has value if there is a counterparty that can pay off in a currency worth something…”

    yes, no doubt.

    this Quote..

    “If money is your hope for independence, you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.”
    ― Henry Ford

    esp. “…The only real security that a man can have in this world is a reserve of knowledge, experience and ability…”

    seems to be one, of the few, bulwark(s) against “…collapses etc. take out societies and financial systems on a fairly regular basis…”

    and, toward your last point..

    “Where people work longest and with least leisure, they buy the fewest goods. No towns were so poor as those of England where the people, from children up, worked fifteen and sixteen hours a day. They were poor because these overworked people soon wore out — they became less and less valuable as workers. Therefore, they earned less and less and could buy less and less.”
    ― Henry Ford

    as well, here http://www.goodreads.com/author/quotes/203714.Henry_Ford

    are many, other, good ones..~

  41. rd says:

    Unfortunately, the current system is rigged against the Henry Fords.

    Our Henry Fords set up manufacturing overseas on the assumption that there will always be consumers back home, or that there will be more consumers overseas. One of the major problems with modern economics is that the major assumptions are simply assumed to be correct and constant.

    It is ironic that the Supreme Court decided to award corporations personhood in election financing at the precise moment in time when they became World Citizens and largely ceased to be American Citizens.

  42. rd,

    yes, it is, too much, like this..”…One of the major problems with modern economics is that the major assumptions are simply assumed to be correct and constant…”

    with that, it may be worth reflecting on http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus-ns-aaf&v%3Aproject=clusty&query=the+Federal+Reserve+bought+the+Economics+Profession

    and, note #5 here.. http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus-ns-aaf&v%3Aproject=clusty&query=10+Planks+of+the+Communist+Manifesto

    though, you mention..

    “…the Supreme Court decided to award corporations personhood in election financing at the precise moment in time when they became World Citizens and largely ceased to be American Citizens…”

    I wonder if these cats..

    http://www.trilateral.org/go.cfm?do=Page.View&pid=5

    would consider it ‘Ironic’, or is it, just, a piece of..

    “The Trilateral Commission is international and is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the U.S.”
    – Sen. Barry Goldwater

    http://nwoobserver.wordpress.com/2009/08/31/the-facts-on-the-trilateral-commission-show-new-world-order-plot/