With good reason, if the content is anything to go by - it seems that all you have to do for a comfortable retirement is invest in stocks that go up like rockets. And it gets better: the best way (it seems) to choose those stocks is to look at how they've done in the past.
The figures are great, too. To create $100k per year in 10 years' time, they say you'll need a fund of $2 million. Apparently there's no such thing as inflation. Because if there is, and it rolls on at a sedate 2.5% compound per year, you'll need 28% more in 10 years' time.
In actuality, assuming you want your retirement income to be inflation-proofed, your fund will have to be not 20 times the planned income you want, but closer to 40. Partly it's because we're living longer (and retiring earlier), but mostly it's because the life insurance companies have cottoned on to the fact that our governments are (a) losing control of our finances and (b) lying heroically to us about it.
So maybe we're aiming at a fund of $5 million.
The rate of return shown is wild - a mere 29.6% per year. One would have to be "in denial" to postulate a steady 30% a year in America's train-wreck economy, when the great Warren Buffett has been sitting on billions in cash for years and has recently started to hedge against the dollar. Doug Casey has something that he says is "going to the moon", but that's gold - a speculation if ever there was one.
Here in the heavily-regulated UK, the maximum pension growth that can legally be illustrated is 9%, but that's including fund management charges. "Stakeholder" pensions have a maximum annual charge of 1%. So let's assume an (optimistic) annual growth rate of 8%.
Using our revised end-point, our legally-restricted growth rate and working backwards, as in the example provided, we need to start with a lump sum of $2,315,967. Not $194,400.
The article does make some serious points:
- baby boomers are facing a retirement crisis (Richard Bookstaber mentioned that in his interview with Jim Puplava, and thinks it'll be one of the drag factors on investments for many years to come)
- longer-term investments can afford to be riskier than short-term investments
- in the long run, we normally expect equities to outperform bonds
- investing earlier reduces the required rate of return to achieve your end-point target, so start early
How did it do that? Much depends on the type of fund you're in - a fund whose name includes the word "recovery" or "opportunity" is usually one that concentrates on smaller companies, the shy, creeping things that are the first to emerge from the undergrowth after the storm. These are also damaged more easily than the big beasts by economic downturns. So the real lesson is, be in the right type of asset at the right time. Getting into a recovery fund in '02-'04 was a good choice, then.
And how about highlighted stocks? "Starbucks, Franklin Resources, General Dynamics, Amazon, Citigroup… These companies have posted average returns in excess of 30% a year, for more than a decade."
...I'm now reading Benjamin Graham, the man who taught Warren Buffett, and a note to the latest edition points out that in 2000 and 2001, Amazon. com lost 85.8%. If you'd been one of the victims and had to re-start with 14.2 cents for every dollar you had originally, you'd have to post a 704% gain just to get back where you started (and even then, you'd still be behind inflation, and interest earned safely on deposits). The first principle of investing is not to lose your money.
If you're going to risk a fortune on individual stocks, maybe you should blow your wad at the track instead - it'll be more fun. A nice day out, a bit of champagne, and you can sell your binoculars for the fare home.
There's an adage in law: "Free advice is worth what you pay for it". If you want advice, seek out a broker and pay for it. The poor sap is then liable for all your losses, while any gains are down to your wisdom in picking him.
Seriously, though, read financial newsletters with caution, and read the disclaimers first.
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