The Dow Jones Industrial Average closed at a record high on Friday at 16,064 points.
The S&P 500 also made a new high. It closed at 1,804.
And the NASDAQ index closed at its highest level since 2000 at 3,991 points.
The Aussie index, of course, is still a long way from its high. We don’t expect it to breach the high point for another 14 months. Even so, it has gained around 60% from the 2009 low.
That’s nothing to sniff at.
Yet, despite terrific stock gains, not everyone has benefited. Many people have become poorer and more will rely on government support. How is that possible with stock prices going higher? The answer is simple: fear, ignorance, and complacency.
Let’s explain what we mean…
As our old pal Nick Hubble pointed out in a recent report:
‘According to AMP the average Australian has $75,457 saved for retirement.
‘That’s not even enough to pay for two years of “comfortable” living after you stop working.‘
Worryingly, many of those nearing retirement in the next couple of years have even less in retirement savings. They’re looking forward to a life in retirement where they’ll have to survive on little more than the government’s Aged Pension.
So it’s hard to know whether they’ll feel relieved at the advice to the government from the Productivity Commission. It suggests lifting the pension age to 70.
News.com.au reports:
‘Australians would be forced to work until they turn 70, under a radical late-retirement plan from the government’s top policy agency.‘
Do you still think it’s too early to save for retirement?
As you know, we believe that people (including you) should take more responsibility for their own retirement.
You should be an active investor. You should make decisions on how much to invest in an asset, which assets to buy and sell, and when to buy and sell them.
You can do everything yourself or you can get some advice. That could involve reading about the five ‘Retire Rich’ tips from our colleague Nick Hubble, or it could be kind of advice you get from a financial planner.
The choice is up to you. We will say one thing. The biggest beef we’ve got with financial planners is the notion that savers and soon-to-be-retirees should structure their finances so that they can qualify for the government’s Aged Pension.
Our view on that strategy? It’s a bunch of junk.
If any financial planner tried to tell us we should aim to get the Aged Pension we’d get up and walk out straight away.
The whole point of saving and investing is that you build enough independent wealth so you don’t need the Aged Pension. To our mind aiming for the Aged Pension would be like a stockbroker telling you they’ll only put you in losing stocks so you don’t have to pay tax on winning stocks.
That would be crazy.
Yet unfortunately, aiming for the Aged Pension is the kind of junk advice financial pros give unsuspecting investors every day. It’s a crying shame.
Instead, what financial advisors should do is spend more time trying to help their clients make money so they don’t need the government pension.
That’s where the three words we mentioned earlier come in to play: fear, ignorance, and complacency.
And it’s not just the mainstream financial advisors’ fault. Many investors just don’t get it either. That’s a financially lethal combination – a financial advisor who doesn’t get it, giving advice to a client who doesn’t get it.
So, what is it about these three words? First fear…
Most investors are just plain too scared to do anything. Many got into the market during the last bull market rally. At that time they probably followed their financial advisor’s advice to borrow money to buy shares.
That worked well until stocks crashed. So since then they’ve become too fearful to touch stocks again. Instead of realising it was their and their advisor’s stupidity behind their big losses, they both of course blame it on stocks.
That leads to ignorance. They made a mistake, but instead of admitting the mistake they keep pushing the blame elsewhere. Now they probably invest in negatively geared property, paying thousands per month in mortgage payments and thinking they’ve found the secret to lasting wealth.
Of course, they’ve found the opposite: the secret to pouring money down the drain. Not only that, but they also figure their house is their ‘retirement fund’. They’ll tell you that when they retire they’ll just sell their house and live off the proceeds.
They never explain where they’ll live or what happens after they’ve spent the proceeds from selling their home.
Finally, there’s complacency. This is the biggest ‘retirement killer’ of all. It’s the idea that if they haven’t saved enough for retirement it doesn’t matter because, ‘Heck, I’ve paid my taxes, I’ll get the pension.’
What they don’t realise is that adjusted for inflation they’ll never get back even a fraction of what they’ve paid in taxes. They even think the Aged Pension is a ‘safety net’.
In reality it’s not so much of a safety net as a retirement lobster pot. It’s a trap. Once you’re on the Aged Pension, that’s it. It’s pretty much too late to do anything about building up savings.
That’s why complacency is such a killer. It lures people into believing everything will be fine. And that’s why we’re trying to tell you that you should do all you can to avoid the Aged Pension.
You shouldn’t care about getting back the tax you’ve paid during your working life. Retirement is your chance to finally break free of the government. You can structure your finances so you don’t have to pay any tax.
And if you don’t have to rely on a government handout it means you’ve finally achieved financial freedom. If you’ve also built up a big enough retirement pot you may have more personal freedom too…the ability to travel and perhaps live overseas for a while.
That’s the power of planning for your retirement and building up your savings now. We’ll say it again; your goal should be to do all you can to avoid the Aged Pension and any other government handout in retirement.
Make your goal personal and financial independence. We’ll guarantee you’ll have a much for fulfilling and happier life in retirement.
Cheers,
Kris+
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