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Investing Or Saving For The Future. When Did It Change?

Saturday, October 19, 2013 - 9:26 AM
Does anyone remember when the "investment advice" changed from "Don't put anything in the market unless you can afford to lose it" to  "Your money won't grow unless you put it in the market"?
3
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
1. Saturday, October 19, 2013 - 9:38 AM
I can't give you a time and date but I would say it was when interest rates crashed and financial advisors needed to try to sell us those risky investments to make their commissions.  Frankly, I think anyone with financial savvy would still go by the "Don't put anything in the market unless you can afford to lose it" since the stock market will always be in that category.  We can buy a 5 year CD and know for 5 years exactly how much interest we will get even if it is very little but you can't buy a stock and know for certain what it will do in a certain period.    Your money may grow at first if you put it in the stock market but you can never be certain what you will get back when you need to sell it.   So I think the first advice still stands even with this low interest rate economy.
6
paoli2paoli21,142 posts since
Aug 10, 2011
Rep Points: 5,091
2. Saturday, October 19, 2013 - 6:13 PM
Actually I think I read that you can't avoid the stock market if you want to make enough for retirement. Lots of articles point out that you can't earn enough on CDs alone
1
mustsavemoremustsavemore40 posts since
Jun 26, 2013
Rep Points: 121
3. Saturday, October 19, 2013 - 8:07 PM
2.  Maybe in this day and age but they were saying the same thing when I started on my goal and I proved them all wrong!  With 2% interest rates, I would have to instead go back to work to have made my goal but I still would not risk anything in the stock market.  There are ways to save enough money and not use risky investments if you are willing to do what it takes even in these times of crappy interest rates.
4
paoli2paoli21,142 posts since
Aug 10, 2011
Rep Points: 5,091
4. Saturday, October 19, 2013 - 9:05 PM
 From the late 70's when we could start saving we were in CD's only. I was in the the stock market during 2 short periods even though according to the book on the S&P the market has done twice as good when a democrat is president. My husband  never wanted his IRA in the market and I was in the market for a short time from 1996 to Dec 1999 with my IRA and from 2006 to end of 2008 with my 401k when I realized I could play day trader with the bank company bank stock and a cash fund. The cash from  family life insurance policy was also in the market. At work they let us trade everyday with the 401K and if you had your trade in by 3:55 the trade was made that day at the price you sold or bought it at that time you put in your order. It was a  no brainer. The market was very volatile and it was pretty easy money. I received a letter asking me to stop making so many trades and it said that I was not trading as the SPD was meant to have the trades done. I said then change the wording of the SPD but they did not. I spread the word so others could do it also. We did well if we had a couple of minutes to do the trade before the market closed. If the big bosses could do it we could do it also. For some reason the day the bank did the matching for the 40lK was the day to trade before it even showed the stock in our account. We just put in move 100%. The day after was the day to buy it back cuz the stock always went down usually a Monday. Not sure why. Was good to buy on Monday from the cash fund cuz you still got the interest over the 3 days over the weekend from the cash fund but the trade to buy was done on Monday's date. So we sold on Friday when they matched and bought it on Monday when it went down. 
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
5. Saturday, October 19, 2013 - 9:28 PM
Ally:  You were buying and selling stocks the way most professional traders do and you were fortunate you were allowed to do it that way as an individual.  Unfortunately, most people can't or won't take the time to do it your way and that is why they end up losing so much money in the market.  You have to know how to play the game and exactly when to get in and out.  The professionals who buy stocks for customers may not have the time to even do it your way and they end up losing money for customers too.  I have a relative who thought he knew just how to handle the stock market and was very good at it.  Unfortunately, he made a mistake one day and lose his entire savings in just one day.  He had to start all over saving from scratch and never went back to the stock market.  It's almost like a drug, I guess.  When you are making money you are really high but if you lose, you can come down like a rock!  

I think it is sad that this generation does not have the chance to save money like we did.  We really need to have more information for safer investments available for them.  I would love to see Ken have more articles written on this subject for those who want to save but CDs just aren't doing it nowadays.
2
paoli2paoli21,142 posts since
Aug 10, 2011
Rep Points: 5,091
6. Monday, October 21, 2013 - 7:30 PM
Does anyone know how much the market has gone up on a yearly basis over the past l0 years. How about 20 years?  Does it beat CD's over the past l0 or 20 years?  

 
1
SpringSpring6 posts since
Sep 10, 2013
Rep Points: 12
7. Monday, October 21, 2013 - 8:03 PM
Democrat Presidents                          Republican Presidents This was written 10-22-2012

Truman        76.5%                           Ike                  128.1%

JFK-LBJ        70.9                               Nixon-Ford          1.7

Carter          28.1                                Reagan           114.6

Clinton       206.9                                Bush Sr.           52.5

Obama        66.8                               Bush Jr              -35

Sum         449.1                                                        261.8

Years          31.6                                                           36

Annual avg 14.2%                                                        7.3%
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
8. Monday, October 21, 2013 - 9:06 PM
I could not cut and past the graph on CD rates. But like stocks, CD's rate of return depends on the day and which bank or credit union and what time span you purchase the CD. The stock information above was taken the day the presidents took office until the day they left. 
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
9. Monday, October 21, 2013 - 9:16 PM
Ally:  Are those figures in response to #6's question?  I am a bit confused by the Clinton 206.9 number. Are you stating one could have made 206.9% on their investment the entire time Clinton was in office?? 

BTW:  If one considers the years we were making tremendous interest rates without any loses while the stock market has a tendancy to go up and down, I think people would have made more money sticking it out with CDs for the past 10 years even considering when rates crashed. It would be interesting to see the actual figures for the stock market versus CDs for the past 20 years.  I know about 3 years ago the only money I had in stocks through a mutual fund lost several thousand dollars before I cashed out of it.  The stock market kept going lower even after I got out but I don't remember the exact years.  However, as is with the stock market, it is like a yoyo and did eventually go back up again.  I was never sorry I got out though.
1
paoli2paoli21,142 posts since
Aug 10, 2011
Rep Points: 5,091
10. Tuesday, October 22, 2013 - 7:40 AM
It was partly in answer to #6. I had a graph for CD's from 1984 through 2012 but could not post it in this program. Those are the correct figures for President Clinton. From 1996 through 1999 never has the market done so well. But it was in my opinion because of the direction of Phil Gramm from Texas took the direction of banking with the continuing deregulation of the banking system since the 80's. It was because of him that Glass-Steagall and the selling of stocks, bonds, mutual funds etc were sold in the banks. I watched those hearings and taped them when I was at work. I could not sleep and was so upset watching those hearings. I wrote letters to the paper to the President. Again these are the figures from the day the presidents were inaugerated until the new president came into office. The amount you made depends when you got in the market and when you got out. Same with CD's. It depends when you put it in and when you got out. These figures can be deceiving. If you you doubled your money one year in the market making 100% and then the next year lost 50% you still make 0%. Figures are deceiving. It is not like compounding in the CD's.  I was in the market from either 1995 or 96 until Dec of 1999 and could not sleep because there was no reason for it to go up as it did. I had to get out and everyone said I was crazy to get out. I was always watching KNBC then CNBC. When I came home from work and when Bill Woltham (sp) editor of Business Week was on TV with Larry Kudlow  and he shook his finger at the TV and said to his mother-in-law "If you don't want to lose all your money get out now." I called Fidelity that night and took everything out and put in the money market and by Monday had all the money going to banks and credit unions and into CD's.  I will never get back in the market. I want to maintain but as my son tries to tell me I am losing because of inflation. But let the young ones get in the market. I don't have the disposition or temperment for it. Also I don't have Bill Woltham. That magazine was so awesome during that time. Not sure it is the right thing to do but it is right for me. Comparing CD's with the stock market is like comparing an apple with an orange. They are 2 different animals. My thinking is don't put money in the market that you can't afford to lose. If you were in the market in 1929 it took 25 years to be made whole. Below is a paragraph from an article.

As a stock market historian, the single best benchmark for all market analysis is the years from 1929 to 1954. This is the period when the Dow Jones Industrial Average peaked at 381.10 in 1929 and fell to the astoundingly low level of 41.20, a decrease of 89.19% in a period less than three years. 1954 was the year when the Dow Jones Industrial Average finally went above the 381.10 level and never looked back.

When I think of income distribution I think we may be in the same situation again. Others say times are different now. Well I remember Jim Glassman and the book they wrote in the late  nineties also "The Dow 30,000." 

I am a saver not an investor. You shouldn't take my example of what I did. The way I did things was what I decided to do and it is not what is best for others. 
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
11. Tuesday, October 22, 2013 - 8:33 AM
If a person had purchased a 15 yr CD at 15% that was available in the bank where I worked in the early 80's it would doubled in 4.8 years so it would have been a better investment. There was a time that I also purchased a 10 yr 10% CD at Flagstar and a 7 yr 7% CD at First Community, a 10yr at 8.10 at Capitol 1. Another one for 7.83% at Capitol 1. But inflation was higher then. CD's are compounded and so you cannot compare them to the stock market. You cannot compound what you get in the market cuz it goes down. You take compounded interest from CD's and compare the total return from the market.  That is why I think Ken teaching us to ladder CD's which I have always done and I believe it pays off. You always have CD's maturing and always go for the highest interest no matter how short or long the period is.  When you put your money in for a short time waiting for a higher interest you have to make up the money you lost waiting for the interest to go up. In my opinion you lose waiting. Ladder your CD's and you will come out ahead. For those that have the temperment for the market go for it. I did for 3-4 years when the market rarely went down and still couldn't sleep. 
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
12. Tuesday, October 22, 2013 - 8:50 AM
I found this chart for the stock market:

http://moneyover55.about.com/od/howtoinvest/a/marketreturns.html

Ally:  I don't understand your saying "it's the same with CDs" concerning when you get in and when you get out.  How can that be?  If you purchase a 5 year CD it's going to return your principal even if you have to pay a penalty to cash out early.  If you stay in the entire 5 years, you still get the same rate until maturity.  Of course, you may not be able to buy other CDs at that same rate if rates decreased but you never lose what you first deposited.  With the stock market, you may deposit 40M today and when you need the money if the market is down, you can't depend upon getting that 40M back.  Stocks are not a dependable investment, imo.  I gather from the gist of your entire post, you do not use stocks any longer as a "dependable" investment.   A local financial advisor who gives free seminars and programs every Monday on a local TV channel says that Stocks are considered "investments" and CDs are considered "Savings".  He reasons this by the fact that one cannot depend upon getting all of their principal back from "Investments" but "Savings" are vehicles which are more dependable.   Unfortunately, today's rates are very low for most "Savings".
1
paoli2paoli21,142 posts since
Aug 10, 2011
Rep Points: 5,091
13. Tuesday, October 22, 2013 - 9:26 AM
I meant that when purchasing a CD---banks did not used to be regulated on how much they offered for CD interest. So one bank could or would offer much more in a given day during the week. Somedays rates changed many times during the day. You cannot compare rates because they were all over the place. More so than now. Many times there were no penalties for withdrawing a CD early. So people would get a CD and a bank or saving and loan down the street offered more interest a few days later and the customer would close one CD and go to another bank etc. Sometimes the original bank would match the higher rate or offer more to an individual customer.  Also banks would automatically renew CD's like now and if interest went up within 10 business days  then the customer would take the money out without a penalty like now and renew at the higher interest. It was a tremendous amount of paperwork.  Each bank had its own rules. Now you are not going to get all of your principal back at some banks or credit unions. Many banks and credit unions take away from principal if not held a year. Some have the ability to refuse to give you the money before the CD matures. That is why they are called timed deposits. You should always ladder CD's so you will never have to cash a CD in early. That is why it is a good idea to use reward checking accounts for an emergency fund even though at this age I cannot forsee any type of emergency. Never had to use that money or break a CD in early but it is always prudent to be prepared. I have medigap insurance so I should never have medical bills, have a newer car, have a newer house. We did all of this to prepare for retirement. 
1
AllyAlly778 posts since
Jan 16, 2010
Rep Points: 2,266
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