PBS Drops Another Bombshell: #WallStreet Is Gobbling Up Two-Thirds of Your 401(k)

[progree]

35. Actually, I deployed some new money in REIT (Real Estate Investment Trusts)

Last edited Wed May 1, 2013, 01:36 AM - Edit history (1)

Given how my little lousy townhouse is valued at less than what I bought it back in 1980, 23 years ago, and given that the freaking mortgage payment (PITI) is only like $400/month for a property that could easily rent for $1,000/month, I think it's a nirvana for investing in rental real estate. I wrote a special note to myself to put a priority on increasing my investment in rental real estate. Thank you for the reminder.

[font color = blue]I agree that rental properties are not an alternative.

But had we encouraged people to pay off their mortgages in their 50s rather than move up or put money into 401(K)s, the financial crisis would be a lot less difficult for people. It's one thing to be out of work and have to pay rent. Quite another to own your house and lose your job when you are in your 50s. [/font]

Actually, I think rental properties at today's prices are a once in a lifetime opportunity -- see above.

As for people who lost their homes but had a hefty 401k: They could have taken their gains from their 401 k's to make their mortgage payments. 9 - 11%/year gain in the stock market is a lot better than what you get paying down a 4% or 6% mortgage.

[font color = blue]I do not believe in the "recovery" of the stock market. I think it is not for real. [/font]

That's what I thought. But I was too lazy to move my money out of stocks. And then we got some black Kenyan for president and the stock market has almost doubled.

Again, with corporate earnings growing an average of 9%/year per share (please see the Peter Lynch quote in #29), it is inevitable that stock prices will follow. Sometimes prices will lag earnings growth for a long time. Sometimes prices will get ahead of themselves with high P/E ratios. But over the long term inevitably prices will follow earnings growth.

[font color = blue]Look at Main Street. The jobless figures and even more so the real jobless figures that you don't see because people don't report that they are looking for work indicate that business profits cannot last. [/font]

Hmm? I haven't heard before that people don't report that they are looking for jobs.

By the way, there's a crapola meme out there that people who have exhausted their unemployment benefits are not counted in the unemployment rate. That is not true. http://www.bls.gov/cps/cps_htgm.htm . People's unemployment benefit status has nothing to do with the official measurement of the unemployment rate. The unemployment rate is based on a household survey asking if they are not working, and if not, then have they looked for a job in the last 4 weeks. Whether or not they are receiving unemployment benefits is not a factor in the official unemployment statistic.

[font color = blue]Investing overseas is OK if you are young and invest in different things early on. But that was not an option when I was young. And any overseas investment, especially in the third world, should be made with great caution. Many of those countries do not have a legal system that respects private property in the way ours does. And some countries can simply nationalize industries in various ways not necessarily directly if they want to. [/font]

Yup. Only a small part of my money is in emerging markets. Maybe 10%. I hear you. But from what you say elsewhere, the U.S. stock market is rigged, blah blah. Considering all these factors and 10%/year average annual increase in earnings and stock prices, I have deployed my investments accordingly.

[font color = blue]I stand by the fact that Wall Street is manipulating stock values.[/font]

So why not join them and double your money every 7 years on average, rather than telling your fellow progressives to hide their money under a mattress? Why do you suppose that the wealthy have so much money in the stock market? I am forever baffled, how, in one post, progressives here can talk about how corporate profits are exploding, how profits are gaining as a share of the economy at the expense of wages. But then these "progressives" tell us not to put our money where the wealthy put their's???

That my contributions to progressive campaigns are near a thousand in an election year rather than in the tens is because I ignored the doomers and gloomers and invested in stocks. Something to think long and hard about. For other progressives, do you really think that hiding their money under the mattress or putting it in 1 - 2% CD's is fair to them, compared to doubling their investments on average every 8 years or so in the S&P 500?

Interestingly, the example in the OP -- the difference in a 5% vs. a 7% return is a 61% difference (on a lump sum over 50 years) -- applies too to people that accept lower returns in the pursuit of safety. If someone accepts 3% in bonds rather than say 7% in stocks in the hopes of being "safe" are giving up 85% to the God of Safety, i.e. ending up with only 15% of what the stock investor ended up with:

Investing in 3% bonds: 1.03^50 = 4.384
Investing in stocks that return 7%: 1.07^50 = 29.457

29.457 - 4.384
-------------- = 85%
4.384

4.384 / 29.457 = 15%

29.457/ 4.384 = 6.72 -- the stock investor has 6.72 X the bond investor.

[font color = blue]ETFs are safer than some other things. But still when you think about Main Street you wonder how businesses can claim profits when no one has money to buy things. [/font]

I do have money to buy things, and so do plenty of other people. Links please on "when no one has money to buy things". That's a new one to me. If true, I certainly would be in a dither too.

[font color = blue]The defense industries, of course, keep going and showing profits, but they rely on tax money for income. So that choice also does not have the kind of positive outlook that warrants the current market. That's my opinion. [/font]

I think the defense industry is a great investment, though I don't target it. Just my opinion.

[font color = blue]I did a lot of reading on the stock market crash of 1929. We have gone back to the unrealistic expectations of that era. That's my opinion.[/font]

OK. I also think of the tremendous gains of the stock market since then, like well over 10%/year, i.e. a doubling every 7 years (ON AVERAGE). Do you really want to advise your fellow progressives and Democrats to forego that?