Mike Kueber's Blog

September 28, 2011

Military pensions

Filed under: Military — Mike Kueber @ 4:28 pm
Tags: , ,

There is a lot of talk about reforming military pensions as one way to reduce America’s defense costs.  The argument is that, like other government pensions, they are too generous.

A well-written op-ed piece in the NY Times describes the key issues, and I especially like its recommendations that (a) partial pensions should be made available to those serving less than 20 years, and (b) payments should begin at the normal retirement age.  Both recommendations are imminently reasonable, but I wonder why I have never heard the Times extend this same reasoning to its sacred cows – pensions for police and fire personnel.

Although most of the Times analysis is solid, I disagree with two points:

  1. The Times argues that “a 401(k)-type plan for future retirees, is the wrong way to go. Military pensions should not be held hostage to stock market gyrations.”  I believe that, just because the stock market goes up and down, it remains the best place to grow your money.
    Furthermore, 401(k) plans always give investors the opportunity to avoid risk by putting their money into cash or bonds.  Fixed-benefit pensions are rapidly going the way of the dinosaur, and there is no need to maintain an exception for military personnel.
  2. The Times argues that military pensions are too generous.  I believe that is clearly true of civilian government-employee pensions, especially police and fire, but not true of the military pensions.  When pensions (and other benefits) are too generous, the free market dictates that you will have an abundance of people seeking and holding on to the positions.  That is why there are long lines of people
    wanting civilian government jobs, especially police and fire, and very few people leaving those jobs before attaining the retirement benefits.  By contrast, there are not enough people wanting a job in the military and a lot of the military personnel leave before their so-called “generous” pension is vested.

The military pension needs to be reformed, perhaps with some money being shifted from pension to compensation, but the problem isn’t that America is spending too much on its military personnel.  Once the economy recovers, we will find that patriotism isn’t enough to keep our ranks filled, and we will have to spend more or re-institute a draft.

March 24, 2011

Do defined-benefits pension plans deserve to die?

Earlier this morning, I heard a FOX News opinionator suggest that defined-benefits pension plans (DB plan) have no place in America.  Because his position seemed a bit extreme (I have a DB plan from USAA), I wasn’t entirely focused when he explained that the economic status of virtually everyone is affected by the ups and downs of the economy, so why should retirees be any different.  As the morning went on, however, I kept returning to his explanation and found it persuasive.

For those who don’t recall the difference between the two major types of pension, a defined-contribution pension plan (DC plan) is like a 401k.  A defined amount of money (a percentage of an employee’s salary) is put into the plan, but the amount coming out to a retiree depends on how well the money is invested.  If the money is invested conservatively, it will probably have a small positive return of 2-5% annually.  If it is invested aggressively, it might have a negative return or a positive return of more than 10% annually. 

By contrast, a defined-benefits pension plan (DB plan) pays a pension amount that can be calculated by multiplying an employee’s salary times years of service times a pre-determined multiplier.  For example, an employee with a $100k salary and 40 years of service and a 2% multiplier would receive an annual pension of $80k ($100k x 40 x 2%).  Common variations with the salary calculation include whether only the final year is counted, the highest year, or the highest three or five consecutive years.  Public employers tend toward a shorter term, while private employers tend toward a longer term.  When employers base their calculation on a single year, there is a tendency to load up on overtime pay in that year.  Public employers also tend toward a higher multiplier.  Some employers further limit the years of service to a maximum of 30 years. 

My former employer USAA had a pension plan based on the average of the highest five years of salary, with a 30-year maximum and a 1.5 multiplier.  Thus, using the same example as above, a USAA employee’s pension could be reduced by almost half – i.e. $40,500 ($90k x 30 x 1.5%).      

Perhaps the greatest variation in a DB plan is the age of retirement.  A DB plan can provide full benefits at age 65, like Social Security does.  My previous employer USAA gave full benefits at age 62.  Most government employers give full benefits at a much earlier age – either at age 55 or after 30 years of service.  This variation is so expensive because government employees can easily draw retirement for more years than they worked.

Although employees may contribute some of their salary toward a DB plan, the employer is responsible for putting away enough money to satisfy its pension obligations (unlike the federal government and Social Security).  When the business and investments are going good, an employer is more able to pay into its pension fund; when the economy is bad, those payments are difficult.

Public v. private pensions

The verdict of private employers is in, and they have eliminated their DB plans and shifted to DC plans, including USAA which discontinued its pension several years ago.  Ironically, DB plans have survived in the public sector even though the public-sector plans have traditionally been much more generous.  In fact, I went bike-riding this past weekend with a state employee from Colorado who told me that their multiplier (2.5%) was even more generous than Texas’s (2.3%). 

One could argue that public employees are significantly sheltered from the economic cycle during their employment and thus continuing this shelter during their retirement is appropriate.  I disagree.  As my old boss at USAA used to say during his employee meetings, the company works better when everyone realizes how interdependent we are on each other.  We don’t want public employees thinking, “I got mine, Jack.  What’s your problem?” 

Social Security is the grand-daddy of all defined-benefits plans, and George W. Bush was soundly rebuffed when he tried to convert part of Social Security away from defined benefits and toward defined contribution.  Although that part of Social Security that serves as a safety net should remain a defined benefit, the other part should be converted to a defined contribution.  I remain optimistic that good ideas like that will eventually be accepted by Americans.

December 7, 2010

Government pensions – are they a thing of the past?

When I was running for Congress, people often scolded me over the obscene pensions that Congress had awarded itself.  After researching the matter, I started responding that it was an urban legend that Congressmen could retire at full pay after only two years of service, but I’m not sure they believed me.

The issue came up again a couple of weeks before my March primary at a candidate forum in Del Rio, and I reiterated to the audience that Congressional pensions vest after five years of service.  This didn’t satisfy one of the candidates, Dr. Lowry, who proclaimed that no one else has a pension vest in five years, so why should a Congressman.  To this I responded that federal law required all pensions to vest in five years.  I happened to know that because when I worked for State Farm Insurance (for six years) in the 80s, the vesting requirement was ten years, so I lost my pension when I moved to USAA.  Then shortly after I started working for USAA, I learned that the vesting period was reduced to five years.  Bad timing!  Regardless of those facts, I suspect that in the eyes of those who attended the candidate forum I lost the argument with the doctor.  Their point was that Congressional pensions were too generous, and it’s hard to argue against that.

The federal government has a reputation on providing the most generous pension plan extant.  This reputation was confirmed by a recent news report that showed the average job in the federal government paid $80,000 a year in salary and $40,000 in benefits while the average private-sector job paid $50,000 in salary and only $10,000 in benefits.

Comparing federal and private pensions

To separate fact from fiction on pensions, the following is a comparison of two plans for federal employees – one for Congressional employees and another for non-Congressional employees – and my USAA pension, which is generally acknowledged as a top-of-the-line plan.  :

  • All three plans vest after five years of employment, but you can’t start drawing on the pension until you reach the plan’s retirement age (or a discounted amount at the early-retirement age).
  • The retirement age for a full, undiscounted Congressional pension is 62 for employees with 5-20 years of employment, age 50 if for employees with 20 years of service, and at any age for employees with at least 25 years of service.  The retirement age for the non-Congressional pension is 62 for employees with 5-20 years of service, age 60 if for employees with 20 years of service, and age 55 for employees with at least 30 years of service.  The retirement age at USAA is 62 period.  Thus, the Congressional plan is out-of-this-world great, the federal plan is fantastic, and the USAA plan is good.
  • The base amount for both Congressional and non-Congressional federal plans is the annual average for the highest three-year period.  USAA uses the annual average for the highest five-year period.  This difference seems minor.
  • The multiplier for a Congressional plan is 1.7% of the first 20 years, and 1% for each year above 20, with a maximum of 80%.  The multiplier for the non-Congressional plan is 1.0 or 1.1% for federal pensions (depending on the age at retirement).  The multiplier is 1.5% for USAA, up to a maximum of 45%.  Thus, USAA has the best multiplier, but the maximum of 45% discourages long-tenure.  My ex-wife is a teacher, and their multiplier is 2.3% a year.
  • Congressional and federal employees pay for one-fourteenth of the cost of their pension plan (1.3%) of their salary toward their pension; USAA employees contributed nothing.  Again, USAA’s plan is slightly better.
  • All three plans include COLAs.

In addition to these defined-benefit pension plans, the federal government and USAA both provide a defined-contribution, 401k-type plan to their employees:

  • The Congressional and federal plans include a 1% payment to the government’s Thrift Savings Plan (a defined-benefit, 401k-type plan), then a full 3% match, and finally a 50% match of 2%.  This is essentially a 5% match, whereas USAA had a 6% match.  Again, USAA’s plan is slightly better.

Because federal and USAA employees contribute toward Social Security, they are able to develop a solid, three-stool retirement plan:

  1. A defined-benefit pension;
  2. A defined-contribution plan that they manage; and
  3. Social security.

Most people know that pensions are a thing of the past.  My previous employer USAA is nationally renowned for providing one of the best benefits packages in the nation, but even it discontinued its pension several years ago.  USAA, like most generous private employers, has shifted to providing a beefed-up 401k plan.   Currently, only 33% of private-sector employees are covered by a pension, whereas 98% of public-sector employees have a pension.

Because the federal pension is so out of step with private employment, it was totally expected that Obama’s deficit-reduction commission would treat the federal pension as low-hanging fruit to be picked, and they did not disappoint us.  The commission made the following sound recommendations:

  • The base amount for pensions should be the high-five years of salaries instead of the high-three years.  Although this seems like a nominal change, an employee union is arguing this change will reduce benefits by 3-5% and will save the federal government $5 billion by 2020.  (An example in the other direction – NYC allows its police officers to draw a pension based on their highest year.  That is why the officers will traditionally work an exorbitant amount of overtime during a single year and then base their retirement pay on that year.  Only in NYC!!!)
  • Federal employees should pay for one-half of the cost of their pension instead of the current one-fourteenth.  This will save the federal government $51 billion by 2020.
  • Defer cost-of-living increases until the employee reaches the age of 62 instead of triggering the COLA as soon as the employee retires.  In place of annual increases, provide a one-time catch-up adjustment at age 62 to increase the benefit to the amount that would have been payable had full COLA been in effect.  Surprisingly, this would save $17 billion through 2020.

I have previously commended the Obama Commission for the high-quality work that it performed.  My closer look at this smaller issue – federal pensions – provides further evidence of that high quality.  Although I would have suggested that the federal government go the route of USAA – i.e., eliminate the defined-benefit pension and replace it with a beefed-up 401k – I think the Commission recommendation reveals its strategy to accomplish its objective while minimizing fundamental structures.  Some have criticized the Commission for failing to take on ObamaCare or to restructure the tax code, but I think they were wise to avoid those battles when they could.  Those fundamental battles can be fought another day.  Today let’s get the deficit under control.

November 28, 2010

Income inequality in America

Income inequality is growing in America, and virtually everyone wishes it wasn’t so.  The question is whether government should do something to reduce that inequality, and if so, what. 

If you are searching for an answer to those questions, don’t turn to NY Times columnist Bob Herbert.  In a column earlier this week titled “Winning the Class War,” Herbert did nothing to improve understanding of the questions.  Instead he charged that the rich were waging war against everyone else, and they were winning.  As proof of this inflammatory claim, Herbert put forward a report that American companies had earned more money in the third quarter of 2010 than in any previous quarter in American history, almost $415 billion.

Huh?  How does profitability for American companies equate to class warfare?  Is it the role of American companies to ameliorate income inequality by making less money?  I agree that the long-term prospects for American companies depend heavily on the American consumer making a recovery, but that should not lessen the salutary effects of profitable companies.  It is not only the “corporate fat cats” who benefit from companies with record profits; so do the employees and everyone with a 401k.  I know my 401k looks a lot better than it did a year ago.

Herbert hypocritically concluded his column by lamenting polarization, all while categorizing people as either working Americans or aristocrats.  His answer – working Americans need to unite to work out “equitable solutions”:

  • Extreme inequality is already contributing mightily to political and other forms of polarization in the U.S. And it is a major force undermining the idea that as citizens we should try to face the nation’s problems, economic and otherwise, in a reasonably united fashion. When so many people are tumbling toward the bottom, the tendency is to fight among each other for increasingly scarce resources.  What’s really needed is for working Americans to form alliances and try, in a spirit of good will, to work out equitable solutions to the myriad problems facing so many ordinary individuals and families. Strong leaders are needed to develop such alliances and fight back against the forces that nearly destroyed the economy and have left working Americans in the lurch.  Aristocrats were supposed to be anathema to Americans. Now, while much of the rest of the nation is suffering, they are the only ones who can afford to smile.

It is apparent that Herbert wants government to redistribute wealth in America.  That puts him in agreement with President Obama, who famously told Joe the Plumber that America would be better off if it spread the wealth around.  I disagree because that proposal is creeping socialism, and as most reasonable people understand, socialism is fine until you run out of other people’s money to spend. 

I believe there is no short-term answer.  Yes, progressive taxation is a reasonable action that will ameliorate income inequality, but that does not change the underlying fundamentals that are causing the growing inequality.  Our country has to improve the opportunity for social mobility – i.e., the ability of those in the lower class to move up.  In the past, that mobility has been achievable through a strong work ethic, but that is no longer true.  Today mobility requires a good education, and our government needs to focus on helping its people get better educated.

November 8, 2010

The transformation from saver to spender

One of my principal mentors in life, Marv Leibowitz, taught me to be a better saver.  Until I met Marv around 1995, I was a regular saver who put 6% of my salary into my 401k so that my employer USAA would match that with another 6%.  Plus, I would put about $50 a month in each of four college accounts for my four boys.  I thought that I was an exemplary saver, but Marv disabused me of that notion. 

Marv had taken early retirement from the Air Force with, as he phrased it, “not a pot to piss in,” but during his second career at USAA, he started taking saving seriously.  (It was easier since his three kids had left home.)  By contributing the maximum 15% to his 401k, he had amassed a small fortune for his retirement (thanks in part to a booming stock market), and he suggested that I do the same. 

After Marv’s prodding for a few months, I increased my contribution rate to 15%, had my then-wife Debbie make maximum contributions to her school’s 403b plan, and occasionally would make $100 contributions to the kids’ college plans.  Maintaining this level of saving wasn’t easy.  We had to decline or defer a lot of purchases, and we always shopped vigilantly for the best buy.  But because of this Marv Leibowitz mindset, when Debbie and I divorced a decade later both plans were relatively flush with money.  (No, my frugality was not a contributing cause for the divorce, although it did sometimes perturb her.)  

Marv Leibowitz had retired from USAA several years before my divorce, and before he left, I would tease him about whether he would be able to make the transition from being a saver to being a spender.  He pooh-poohed that idea, and said that he had no intention of leaving his money to his kids.  He and Syl had saved that money for themselves, and although there might be some left over for the kids, that would be incidental.  Years later when I talked to Marv, he hadn’t touched his 401k and was living on his social security, his military pension, and his USAA pension.  But I didn’t tease him about it, so I don’t know if he recognizes or accepts a change in philosophy.

I feel the same way as Marv Leibowitz and, incidentally, Warren Buffett, who has famously promised to give his money to charity instead of his heirs.  I am not motivated to create a big inheritance for my children.  I hope to help them grow into successful people, but the possibility of an inheritance shouldn’t affect the way I live my live or the way they live theirs.  Unlike Buffett, though, I do not plan to altruistically give my money to charity.  I plan to spend it.

That said, there is still a problem with transforming from a saver to a spender.  There’s an old saying in Texas about a cowboy who is so careful with his water during a long, dry trip and then has difficulty pouring it out at the end of the trip.

 Something about saving feels good.  One recent proponent of free enterprise over a welfare state maintained that the human spirit flourishes with free enterprise while it withers in a welfare state.  I agree, and I wonder if the same thing applies to saving.

There was a popular book a few years ago (actually 1996) titled, “The Millionaire Next Door” by Thomas Stanley and William Danko, and that book profiled significant, albeit obvious, differences between under accumulators of wealth (UAWs) and prodigious accumulators of wealth (PAWs) – things like spending less than you earn, avoiding the purchase of status items, taking risk when the potential rewards justify it, and refusing to raise permanently dependent kids – but the book never gets around to explaining what happens with the accumulated wealth (e.g., give it to charity, give it to your heirs).  More importantly, it suggests but does not explicitly make the case that people who save more than they spend are happier than those who spend more than they save.  

There was, however, a recent study out of Princeton University (Angus Deaton and Daniel Kahneman) concerning the relationship between income and two types of happiness – day-to-day mood and deep satisfaction with life.  The study found a correlation between income and day-to-day mood, but only up to $70,000 of annual income, at which point happiness leveled off.  Whereas, the correlation between income and deep satisfaction with life applied to all income levels.  The higher your income, the higher your satisfaction.  Don’t tell that to Howard Roark or John Galt.  

http://wws.princeton.edu/news/Income_Happiness/Happiness_Money_Summary.pdf.   

Although I have not been able to find any studies on a correlation between savings and happiness, my intuition tells me that savers are happier.  But, unless I return to the workforce, I will never be a saver/producer the rest of my life.  Instead I will be a spender/consumer.  So I need to figure out a way to feel good about that.  If you have any ideas, please share them.

November 2, 2010

Intestinal fortitude

Filed under: Finances,Investing — Mike Kueber @ 5:04 pm
Tags: , , ,

My brother Kelly visited me from North Dakota a couple of weeks ago.  It was the first time he had to Texas since 9/11/01.  On that day, I remember him calling down from upstairs to say there was something important happening on TV.  During a previous trip to San Antonio, Selena was murdered (3/31/95).  Fortunately, nothing traumatic happened during this trip, but Kelly did tell me about something traumatic that happened more than a year ago – the stock market crashed and his 401k became a 201k. 

Although I am an avid investor and follow the market daily, I am lucky to have a cool disposition toward its ups & downs; Kelly, not so much.  For most of his working life, Kelly worked as an accountant in Fargo, ND for a small chain of motels.  This chain not only didn’t provide employees with a pension, they didn’t even offer a 401k.  For long-term security, employees were left to their own devices except for mandatory social security.  About five years ago, Kelly went to work for Cirrus, an airplane manufacturer in Grand Forks, ND.  Although the company didn’t have a pension (very few companies do nowadays), it did have a 401k.

Kelly’s initial 401k strategy was solid, in my opinion.  Even though he was nearing 50 years old, he invested bullishly in the stock market.  Unluckily, his timing couldn’t have been worse.  In 2005, the market had been inflating for several years because of the boom in house prices (caused by the subprime mortgage fiasco), so Kelly was buying over-valued stock.  Then in 2008, as the housing market collapsed, the stock market crashed.  The crash caused Kelly and millions of other market newcomers to abandon the stock market.  As newcomers to the market, they thought that they had learned their lesson relatively cheaply, and that lesson was that the stock market is gambling at best and rigged gambling at worst.  In either event, it is something to stay away from.       

We’ve all heard the old saying about “buying low and selling high.”  And obviously, people who sold out near the bottom of the market in March of 2009 did the opposite – i.e., they bought high, sold low, and missed the big gains for the past 18 months.  But I appreciate how hard it is to stick to the time-tested fundamentals of investing, such as dollar-cost averaging, periodically adjusting your portfolio, and the most important – buy and hold.  In fact, disciplined as I am, I didn’t have the courage last year to re-allocate my stock portfolio to 40% international when its share dropped to barely 35%.  Instead, I rationalized that maybe I should have allocated only 35% to International from the beginning.  So what happened?  International has completely recovered to 40%, and I would have made a lot more money if I had re-allocated.

I had a similar failing in picking NFL games the past few weeks.  My initial strategy was to go with the Vegas line unless the line was close and I had a strong feeling that Vegas was wrong.  That strategy worked OK at the beginning of the year, but there were a lot of upsets, and I wasn’t in the top tier of players.  Because I lacked discipline (this was supposed to be fun), I decided to pick more upsets.  So what happened?  As some sports-gambling books have suggested, the Vegas line gets more solid as the year progresses.  In the last three weeks, the Vegas line would have earned one second-place finish and one third-place finish in the Hill’s & Dale’s pool.  My prognostications, laced as they were with upsets, have moved me toward the bottom of my pool.

The moral of this story is to apply solid fundamentals to your strategy, whether in investing or gambling, and don’t let short-term results distort that strategy.  I think that’s what they used to call intestinal fortitude.

August 30, 2010

An open letter to Obama’s Fiscal Commission

Filed under: Economics,Issues,Politics — Mike Kueber @ 5:37 pm
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Dear Commissioners:

 Reforming Social Security is essential to attaining fiscal responsibility in America.  Although this program has nobly served its original purpose of creating a safety net for senior citizens, I suggest that now is an opportune time to decide how Social Security should look in 2050 and then develop a transition process to get us there.

The core principle behind Social Security is that no senior citizen should live in poverty.  Therefore, our starting position should be that every senior citizen should receive benefits sufficient to remain out of poverty (e.g., 110% above the poverty line for an area).  This safety-net benefit should be funded by an uncapped flat tax on income, unlike the current FICA wage tax that is capped at $110,000.  I expect that the rate for an uncapped flat tax to fund a poverty-line safety net would be low enough to be palatable to the vast majority of Americans, but to ensure broad acceptance, I suggest that the benefits should not be needs-based.

Having secured our core principle of eliminating senior-citizen poverty, the next step is to consider the role of the government in middle-class retirement planning.  There are two principal options:

  1. Tweaking the current system by (a) raising the retirement age, (b) reducing benefits, or (c) increasing the FICA tax; or
  2. Privatizing the accounts.

As a conservative, I am pre-disposed toward privatized accounts because they reduce the role of government.  Although the recent jolt to the stock market starkly reveals one of the dangers associated with privatized accounts, I continue to favor them, not only to reduce the role of government, but also to enhance an individual’s appreciation for capital.  Social Security is essentially an annuity, and the annuity owner feels an incentive to start drawing on it as soon as possible, often at age 62.  By contrast, a privatized account feels like a capital asset, and the owner wants to protect and grow that asset as long as possible.  I believe that this tendency will smooth out the demographic fluctuations because, instead of trying to deplete an annuity, an individual will try to grow it and then bequeath it to heirs.

Of course, there is a third option – i.e., completely eliminating the middle-class accounts and instead rely on 401k-type accounts to provide middle-class retirement.  The question is whether middle-class people should be required to save for a middle-class retirement.  In the short-term, I think the answer is yes because many lack the necessary discipline to do this on their own, but in the long term, I think our country is better off if its citizens are free to make their own retirement decisions.

Thanks for your consideration.

Mike Kueber

San Antonio, TX
mkueber001@satx.rr.com

June 3, 2010

My philosophy on investing for retirement

Filed under: Investing — Mike Kueber @ 1:17 am
Tags: , , , ,

While running for Congress, I participated in seven or eight candidate forums, and most of the questions in those forums were predictable – abortion, guns, immigration, and global warming.  But one question threw me for a loop.  

The moderator at KLRN public TV asked me to describe the new public programs that I would push for to help people prepare for retirement if they were currently living paycheck-to-paycheck.  The question was difficult from a number of aspects, the most obvious that, as a conservative, I wasn’t in the business of pushing for new government programs. 

The tricky aspect of question was that it seemed to be related to retirement savings, but that only masked the real underlying problem, which is living paycheck-to-paycheck.  Anyone living paycheck-to-paycheck can’t save for retirement until they quit living paycheck-to-paycheck, and most financial guidance is focused on that objective – things like cutting your expenses and reducing your debt.  But my post today is not for those who are living paycheck-to-paycheck.  Rather is for those who already have some extra money to put away for retirement.

My investing philosophy has five fundamental considerations:

  1. Don’t stuff your money in a mattress.  People joke about stuffing money in a mattress.  I feel the same way about any money that is not invested in stocks.  Money is either working or it is sitting on the sidelines.  If your money is not in stocks, you are essentially playing like a small-time banker who loans out money and receives a little interest.  Everyone knows that significant financial rewards are reserved for businesses entrepreneurs.  If you invest in stocks, you are an entrepreneur.
  2. Root for a booming economy.  If you have your money parked in bonds or cash, while your friends have theirs in stocks, you might be tempted to root for the stock market to do badly.  I hate that feeling.  I want to root for the economy to soar, not for it to tank.
  3. The stock market is not Las Vegas.  Although stocks are risky, they are fundamentally different than gambling.  Stock prices go up and down wildly because of speculation, but the underlying value of a stock depends on its future profits.  Most corporations regularly return handsome profits, and those profits don’t evaporate into outer space.  Rather, they are used by the corporation to acquire additional assets and those assets are reflected in the long-term direction of their stock price. 
  4. Stocks almost always out-perform cash and bonds.  Until recently, financial advisors pointed out that the stock market out-performed cash and bonds over every 10-year period except the Great Depression.  Then last year, there was a lot of talk about the stock market losing money over a 10-year period.  While that is true, please remember that this period includes investors who bought into the market at the height of the dot.com boom in 2000 and then sold out at the bottom of the mortgage crash of 2009.  Yes, those people lost money in the stock market, but their timing was incredibly bad.  In virtually every other scenario, buying stocks was the right move.
  5. Proper asset allocation.  Almost every financial advisor suggests that investors shift most of their 401k-money out of stocks and into cash and bonds as they reach age 50, assuming that they will start withdrawing from the 401k at age 59 or 62.  My experience with professionals at my previous employer USAA is that employees may retire at 59 or 62, but they don’t seriously tap into their 401k at that time.  Instead the 401k-money sits there while the employee taps into a pension, social security, or other assets.  Thus, I think the correct advice for asset allocation of 401k accounts is to stay in stocks until you get within 5-10 years of making significant withdrawals from the 401k.  That will mean leaving a much larger percentage of the 401k-money in the stock market during the early part of your retirement.
  6. Index funds.  John Bogle of Vanguard has convinced me that index mutual funds make sense for most of us investors because of their low cost.  And even the world’s greatest investor Warren Buffett of Berkshire Hathaway says that most investors should be in index funds instead of stock-picking.  But I enjoy stock picking, so I do it.  Although my investment in Warren’s stock has been mediocre, I have had great success with stock in my fitness club – Lifetime Fitness – and my dad’s favorite car – Ford.  If you are familiar with a company’s operation and prospects, I think it is a good bet to invest 5% or 10% of your money in that company. 

Think about getting the boat with me – investing in stocks.  Whether you pick your stocks or invest in mutual funds, remember that a rising tide floats all boats.