And you wonder why many people envy the wealthy?
I was just talking with an elderly woman who has been retired for four years. She and her husband have “small” 401k plans from which they withdrew money to pay for the trip we are on.
“We lost so much money in the crash and we are just now getting back what we had before everything went down.” Just now! Say what?
Not being able to keep my big mouth shut I said “how is that possible?”
She stumbled trying to explain and it finally came out she didn’t want to lose any more and was not a “risk taker” so she took all her money out of stocks (and she wished she could have just put it in a bank savings account) and into fixed income in the 401k’s
This poor lady was way more of a risk taker than she knew, but not unlike many other Americans who may envy the wealthy, but who lack of knowledge to accumulate wealth themselves.
She lost money because of inflation as minimal as it may be now, but more important she lost the gains the stock market has made in the last nine years, gains that would have returned her paper loss (that she, and so many others, made real) and much more.
In addition, she has made a large withdrawal from the 401k for a trip thereby jeopardizing and income stream she may be counting on.
The reason the Buffets of the world are rich and grow richer is because they know how to invest for the long term and ride out the lows for future gains. Sure, you can say that’s easy because they have so much money losses don’t matter to them, but that’s not the point. The point is the strategy they employ and stay with over a lifetime.
If a person employs that strategy over a working life and gradually lowers the risk level near and in retirement and more toward income generation they can do well financially too.
But the truth is (based on my many years of experience with 401k plans) that most workers have no idea what the hell they are doing and put minimal effort into learning anything about investing or managing their money and that goes for young and old alike.
And that means, like the woman above, they will shortchange themselves and jeopardize a secure retirement.