Friday, July 22, 2005

Gamblin' man

This article in today's NY Times rang a bell with me. The premise: Alan Greenspan has forced us all to become gamblers. Before he took over, "banks were advertising one-year certificates of deposit at more than 8 percent, more than double the annual inflation rate." Now, the safest investments barely keep pace with inflation, if at all. (Except for I-Bonds) So you have no choice but to take risks.
I think at my first job, I had some vestige of a defined-benefit pension plan, but ever since then, it's been "you're on your own, baby." Lord only knows what they'll do to Social Security, I don't think I can count on having any. So all my retirement plans are totally in my own hands, for me to manage as best I can. If I didn't have some interest in managing my money, I wouldn't be writing this blog, but the fact is, I have nothing but common sense and very basic research to guide me. I never even took Econ 101. If I've done ok so far, it's mostly luck. (And I've made some choices that haven't gone so well-- see post re. buying GM stock!) It's like playing poker or blackjack-- there may be some factors you can control, but in the end you're at the mercy of chance. Poker is certainly very popular these days, but would you really want to stake your retirement on it?


mmb said...

You can't count on social security. Social Security will still be around but it won't pay near enough to cover your cost of living. I dug up my statement and then used a formula found in one of the investment/retirement planning books I have been reading (can't remember offhand which one) I calculated how much I can expect to draw at age 63. $1490. If I wait till 72 I can get almost $2300 or something like that. But still, can you imagine what inflation compounded over the next 30-40 yrs will do to that amount? No, you can't rely on your social security. You can't rely just on your employer-offered 401ks either because most of them only offer a handful of stocks & bonds and doesn't offer enough options for proper diversification. I am by no means an expert on this subject of course but I have been reading voraciously on this for the last 4 weeks. In this time I have rebalanced my portfolio (now up 3.1% from before) and set up two personal investment accounts. I keep 35k in one which I invest conservatively in low-risk, low-expense, tax-managed index funds & short/intermed term bonds. The other 5k I invest in high-risk stocks hoping for higher returns. Of course, again, I am a novice at this so I am not saying you should do this but something to think about. Invest & diversify. I think you are doing pretty well (probably better than me :) but just wanted to share.

Madame X said...

All true. It would be nice if I could count on having SS and a traditional pension for some part of my retirement, and my own savings for the rest-- I would never not do my own saving. It's that idea of having a bit of a safety net.