Most of us closer to retirement, and fortunate enough to have put some money away, have experienced heavy losses in stocks. To give a broad indication, even after some recent gains, the S&P 500 is off 41% year-to-date.
These losses are deeply worrying. How much longer will I have to work - until I die? Will I be a burden to others? Will I enter old age without resources, isolated, destitute?
For many of us (or at least for me), these worries are aggravated by self-blame.
The causes of the crash are now understood (in part). Self-recriminations, made in hindsight, have followed. How did I not see this coming? How could I have kept as much as I did in stocks? Why did I not get out earlier?
As bailout follows bailout, we hear stories of breathtaking carelessness and hubris. Didn't we share in that carelessness and hubris? Aren't our losses, then, really nobody's fault but our own?
We're helped along in our self-blame by the twin American cultural obsessions of self-reliance and personal responsibility - obligations ironically felt more deeply among guilty liberals than among many conservatives!
But telling the tale as one of pride going before a fall misses most of the tragedy of it. Because while many of the losses did arise from hubris, the greater part of them arose from prudence and due diligence.
For my entire working life, every prudent person saving for retirement who undertook a due-diligence self-education on asset allocation for retirement learned early on - perhaps as their first lesson - to invest heavily in stocks.
As an example, Personal Finance for Dummies (4th ed., 2003) presents the following table as its first quantitative guidance on the topic:
Table 10-3: Allocating 401(k) Investments
25-year-old, 45-year-old, 60-year-old
Agressive Moderate Moderate
Risk Risk Risk
Bond
Fund 0% 35% 50%
Balanced
Fund 10% 0% 0%
Blue Chip/
Larger
Stock 30-40% 20-25% 25%
Funds
Smaller
Company 25% 20% 10%
Stock
Funds
Inter-
national 25-35% 20-25% 15%
Stock
Funds
Even the most standard, conventional, responsible, middle-of-the-road guidance used a model where -
even on the very brink of retirement - keeping fully half of one's holdings in stocks was described as carrying "moderate risk."
Having taken good care and uncovered this advice, most of acted upon it, reasoning, humbly enough, that while somebody somewhere might get better results by setting aside this consensus holding of the nation's accumulated financial expertise, it would be hubris to think that somebody would be us.
So upon due diligence, and taking proper care to maximize returns in hope of a having retirements that burdened neither our families nor society, we saved and invested heavily - in stocks.
This is the tragedy less noticed: that taking greater care, showing greater diligence, acting with greater humility and caution, assuming risk as prudently as possible, yielded such heavy losses. And now the losses yield not just worry, but self-blame. And shame.
EPILOGUE
I have a "careless" friend, who never could manage to set aside time for retirement planning. Never set up retirement accounts as she should have. Never spoke with a financial adviser. So irresponsible was she, that for the last eight years, all of her savings went into a passbook savings account. Eventually there was fifty thousand dollars in it, just laying there, earning two-and-a-half percent.
Two-and-a-half percent! At her age - this was her thirties - she should be fully invested in stocks, doubling her money! Didn't she care at all about building her retirement, about her future? Who did she expect to support her in her old age?
I'm especially grateful for her friendship these days - especially with my current cash flow difficulties.
She has kindly offered to lend to me out of her passbook savings account.
And at a quite reasonable 8%.