After a multi generation conversation over the weekend, I was confronted again with the stark difference my generation (I’m 27) faces that any other generation before us. Many of our parents relied on earning a pension, and worked hard for it. Saving and investing was a secondary concern. Since the abolition of the pension in the last ten years, things have changed dramatically. The change has been tragic for those who had been expecting a pension but had it taken away and are close to retirement. The change for younger people, further from retirement, means they still have time to prepare themselves. However, most of us are heading into uncharted waters. Investing isn’t something our parents were required to learn, so we haven’t been taught. We haven’t even been made aware of what we even need to learn. There isn’t an intelligent conversation going on in our culture that will facilitate adequate learning of necessary information for most people.
The basic fact that my generation will need to generate income from investments enough to support themselves is little understood. The best (and mostly worthless) common knowledge is that you simply buy stocks and mutual funds over the course of your career, and when you retire you’ll have some big portfolio that you can live off. This is significantly accepted as true because for the last 50 years, it has worked. But also, for the last 50 years, the United States has enjoyed consistent growth, prosperity and been the world’s financial leader. If, like me, you hold even some concern that the assumption that the US will continue growth in the next 50 years, similar to the last 50 years, then now is the time to educate yourself about what your options are. And this probably means taking control of your financial future. Is it more difficult? Yup. And time consuming? Oh yeah. And means you get to watch less Dancing with the Stars? Unfortunately (emphasized with sarcasm). But times change, the world gets more complex, and we need to keep growing and moving forward to keep up.
This post is just to suggest an alternative to blindly socking away money into your 401(k) and assuming everything will turn out great. If you educate yourself, consider the options and alternatives, and study the different potential outcomes of the stock market and your investments over the next 20-40 years, and you come to the conclusion that pouring all money into a buy and hold portfolio is your best option, then great. You’ll be that much more able to sleep at night. If you invest in your own education, and develop some concerns, there are many options (contact me if you want to talk about them). However, the most tragic scenario, which most will choose, is to fail to educate yourself and weigh your options.
2011-11-08 – UPDATE – This article from wall street journal is a perfect example of what I’m talking about: “The Young an Riskless”You’ll notice that the concluding remark is that young people can’t change anything, and our only option is to increase our amount of savings put into the stock market. This is awful advice. We can change things. We can change our own knowledge of investing, and take control of our financial future.