Baby Boomer Angst

Baby Boomer angst over retirement was the subject of a program on CNBC last night. I watched it with interest. Whilst it was full of information, the people who spoke and answered questions really did not help Baby Boomers plan their retirement. Some of the information was darn-right dangerous in my view.

Why?

Almost everything that was spoken about was presented as if it was sure thing. The main theme was invest in stocks for the long term and you will be okay. There was no mention of the risk to your nest egg or the need to protect it. In retirement you should look at all investments from the point of view of risk. How much are you prepared to lose if the investment turns sour? No one mentioned this.

None of the presenters talked about the number one rule in retirement, the need to protect your nest egg from major loss when you are in retirement.

It was as if the 40% decline in the S&P 500 in 2000-2003 and the recent 2007-2008 down markets never happened. Don’t they know the market is still down 11%?

Many Baby Boomers do not have enough of a nest egg on which to retire. This accounts for much of the angst Baby Boomers are feeling. But this program implied they should not worry because by investing (gambling) all their nest egg in stocks they will get the growth that will fuel their pension.

Jim Cramer’s Lightning Round was entertaining but irresponsible in my view and targeted the wrong audience. If I was in my 20s of 30s I might take him up on his advice. But going into retirement – no way. His view is to fully invest your nest egg for the long term and ignore the market volatility. I believe that is about the worst thing you can do in retirement. What he is telling you to do it to put your hard earned nest egg at the risk of the markets and hope the returns will be there and the market will be up each time you need to draw a pension.

There is a saying that the market always comes back and if you look at the long term chart this is true. But the speed with which it returns and how much it rises can vary from months to years. Will you be around to enjoy it. After the bear market of 1973 -1974 the market was flat until the early 1980’s. It was also a period of very high inflation so stocks did not protect your nest egg then either.

If you download my FREE Report “What if You Retired in 2000?‘ you will see that the average S&P 500 Return over the period 2000 to 2007 was less that 3% and it included dividends. Basically using a buy and hold strategy your nest egg would be under water by as much as 40% still after 8 years. Take a look if you want proof.

You may be lucky and it might work – but no one knows including Jim Cramer. This is gambling with your retirement. Do not do it with nest egg money.

If you still want to invest in stocks then look at ETF’s for an indexCitiGroup Stock Chart of stocks to protect you from a CitiGroup or a Bear Stearns. But only consider investing about 30% of your nest egg in equities and use stop losses to get you out of an investment if it does not go your way. Look at the CitiGroup chart and apply a 10%-15% stop loss and see how it would have protected you if you had purchased that stock.

Or look at Bear Stearns and apply a similar stop. Also note Bear Stearns stock price was becoming parabolic, a sure sign you should get out. What is interesting here is the recommendations from the brokeBear Stearns Stock Chart courtesy og BigCharts.comrs.

In November of 2006 Punk Ziegel & Co recommendation was to Accumulate the stock with a comment as follows,

“Broker cites positive industry developments that suggests better-than-expected performance in 2007 and 2008 ”

Even in April 2007 Deutsche Bank Securities had a hold on it with a price target of $169 with volume increasing but the price dropping. With a 10% to 15% stop loss you would have been out of this stock. Following the broker advice on this shows you might have got $10 back on it in the last few weeks if you hadn’t got out at a stop loss of about $140.

How much of your nest egg would have been invested in financial stocks since 2003 when they took off because the advice you got was to chase high returns when you should have been concentrating on capital preservation. Right now you would have lost 35% or more on those investments.

Personally I believe Suze Orman was the only one who offered good advice to Baby Boomers with the limited time she had. It was a pity she did not get a chance to expand on her advice on individual bonds.

My advice is find a financial planner based on my post 10 questions to ask your financial planner and have them help you through the retirement planning maze with the emphasis on protecting your nest egg in retirement and with you in charge.

Note: The Charts are courtesy of www.BigCharts.com

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