A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

“I Agree That You Can Today Spend the Portion of Your Retirement Account That Is Just Irrational Exuberance. I Do Not Agree That That Portion Should Be Viewed as Being the Same as the Portion That Is Not Irrational Exuberance.”

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Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:

I have millions of dollars and they are real. They are in my account and I can spend it at any time. Your dollars are not real. They are not in your account and only exist in your head. You won’t see one cent of your fantasy $500 million windfall. How do you know? Because you have nothing to spend.

These are important facts as it determines WHO has the problem. If I had a major issue come up (medical, repair to home, etc) I have the money to pay for it right now? Can you say the same? Of course not. You don’t have any money as you have admitted many times.

I agree that you can today spend the portion of your retirement account that is just irrational exuberance. I do not agree that that portion should be viewed as being the same as the portion that is not irrational exuberance.. The research shows that the irrational exuberance amounts will disappear in time and cannot be relied on.

Rob

Comments

  1. I agree that the amount in my account will not be the same in the future as it is today. Based on the peer-reviewed research and history, the amount should be significantly higher. Meanwhile, your $500 million windfall will still be a fantasy.

  2. The historical record shows that your account will grow over time. That’s because the U.S. economy will grow over time. The performance of stocks is tied to the performance of the underlying companies.

    But it makes zero sense to stay at the same stock allocation at all times. Stocks carry more risk when irrational exuberance is sky high. Investors who want to Stay the Course in q meaningful way need to lower their stock allocation a bit to keep their risk profile stable over time.

    Buy-and-Hold is a marketing gimmick. It suggests that irrational exuberance gains are as real as gains rooted in genuine economic growth. Investment experts should be helping investors to avoid Buy-and-Hold strategies, not suggesting that they follow them. It’s not all about turning a quick buck.

    My sincere take.

    Rob