Baby Boomers need to learn from recent Stock Market History

The Stock Market is going through some high volatility at the moment, as I am sure you know. The daily swings in the value of stocks is enough to give even the coolest of Baby Boomers some heart pounding moments, especially if their nest egg is fully invested. The US markets are down 11% from their highs of 2007.

If Baby Boomers are to learn anything from the recent past we must study what happened and learn from it. It was George Santayana who said “Those who cannot remember the past are condemned to repeat it”. Are we to forget the crash of 2000 and suffer the same fate in 2008 as Baby Boomers who retired in 2000 and who have just recovered much of their nest egg, only to be hit again by the sub-prime debacle and the credit crash?

In my research for better and more secure ways for Baby Boomers to invest when in retirement, I have come across many sites that talk about the effect a down market can have on a nest egg in retirement.

Many of these quite correctly talk about the dramatic impact of negative stock market returns on a nest egg in the early years of our retirement. But I have found none that actually tried to show a scenario that I can relate to and do it in a simple way.

Some show the first two or three years with negative returns and the rest use a lower than accepted long term stock market return. The S&P 500 returns are normally used because this is the benchmark for most mutual funds. Some take into account an average inflation figure, but I’ve found none that try to show the effect of fees, inflation, stock market returns and pension withdrawal on a single table or chart.

As a Baby Boomer in retirement this is what I want to see. I want to see how my nest egg would have performed during the last major downturn in the market from 2000 to 2003. And then how well did it recover from 2003 to 2007. That will give me a “feel” for what might happen in the future.

If you look at most sales information about mutual funds or indeed index funds today they show the last 5 years worth of data. This bears no relation to historical events and the need to show the worst situation to start out in retirement. If they really believed they have the answer they would start their charts from 2000 and show us how investing with them protected our nest egg when the market fell 40%. That would be worth investigating. I’m not saying there should not be any losses. I am saying they need to show how they would have managed our money to minimize the losses.

Alas they don’t do it because their philosophy of “Buy and Hope” really doesn’t work for Baby Boomers in retirement and in a down market. If you had a $1M nest egg and had 50% invested in equity funds in 2000 you may well have been down $250,000.00 by the end of 2002.

I was curious to find out what might have happened if I had retired in 2000 with a $1M nest egg and had to account for fees, inflation, the stock market drop and drawing a pension. So I spent some time putting together an Excel spreadsheet that did just that and have also written a full report on my findings. I am going through it now trying to make sure I have not made any silly mistakes or assumptions before I post it on my blog.

If I am right I hope you are as concerned as I was when I saw the real figures vs. the ones the financial planners give us. It is a real eye-opener.

It will be available for download from this blog over the weekend. It will include a FREE Report and it will include the spreadsheet I used to create the report. The spreadsheet will not be protected. I want Baby Boomers to check over the formulas I have used and make sure my figures are correct or if not let me know so I can correct them.

I hope this will give all Baby Boomers a wake up call and motivate them to take control of their nest egg immediately, especially if they are in retirement. As I have said before, this can still be done with your trusted financial planner but you must take charge and not leave it to them.

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