Bad news… Retirement savers with some (or all) of their assets tied up in a private pension could be facing a nightmare scenario sooner than expected.
Both public and private pensions have been in trouble for quite some time. But it appears private pensions are in the hot seat again. But this time, it’s not a self-inflicted problem…
On the horns of the risk management dilemma
Why? Because, according to Financial Times, some pension plans are (again) facing a predicament. In the “new normal” world of negative real interest rates, it becomes impossible to generate a positive return by investing in conservative, low-risk assets.
On the other hand, pension funds could choose to invest in higher-risk assets. In the world of finance, risk and reward are connected at the hip. That means that less-conservative, higher-risk investments are more likely to at least keep up with inflation.
Some economists see this as an opportunity:
The work of Elroy Dimson, Paul Marsh and Mike Staunton in successive Credit Suisse Global Investment Yearbooks shows that over the past 120 years diversified portfolios of equities in the corporate sectors of high income market economies have done staggeringly well.
Here’s what that looks like:
Well, any higher risk investment compared to a lower risk investment is likely to do “staggeringly” well. That’s not a fair comparison.
Regardless, some pension funds taking on risk by adding equities to their portfolios. Even at a time when equity valuations are at historic highs. Based on the Shiller price-earnings research, this implies a -4.8% return over the next 6-10 years.
This seems like a bad idea at the worst possible time.
But there’s one more flaw in their thinking…
How long do we have to wait?
Take another look at that quote and consider: Given a 120-year timeframe, higher risk equities outperform lower-risk investments. That’s just a bit longer than most people are willing to wait.
The Credit Suisse report 2021 seems to agree with bullish idea of “stocks outperform eventually.” On a more realistic 10-year timeframe, research found that stocks underperform bonds more often than you’d expect.
Regardless of these quibbles, there’s a number we can’t ignore.
That number is zero.
Because adding risk to your savings increases the chances of bigger moves down as well as up.
When weighing risks, don’t forget the stakes
Investors who let themselves be blinded by the possibility of big returns and willfully take on big risks, well, maybe it’ll work out for them. There’s also the possibility of losing everything.
According to an SEC indictment filed in May, one investor was told: “his retirement funds would be safe in the stock of a software company and the investment would produce a monthly return of 11.25%.”
The same indictment reported that the company took advantage of savers and: “largely targeted older and unsophisticated individuals who were trying to preserve or grow their retirement savings.”
The risky retirement investment didn’t pan out, and ended up costing some savers a large portion of their hard-earned nest egg, and according to MarketWatch:
A Texas widow lost her entire $30,000 retirement account.
A Nevada individual lost his entire $92,000 retirement portfolio.
A Kansas veteran and military professor lost almost all of his $320,000 retirement savings.
An Alabama retiree lost $105,000
That’s just part of the list. Others lost up to $150,000. Imagine opening up your retirement account one morning, and finding it empty.
Please make note, this was not necessarily a scam. This is one potential consequence of a high-risk investment.
The bottom line is, risk and reward will always be a constant. Optimism doesn’t matter. When weighing risks, also consider the stakes.
Just as individuals can suffer serious losses in risky investments, so too can private pensions suffer massive losses and fail to deliver on their promises.
Are you taking too much risk?
Most retirement savers don’t have a “Plan B” to cover their bases if Social Security or their private pension doesn’t make good on their promises.
So check up on your retirement savings with an eye to risk levels and your time to retirement. You may consider diversifying your eggs into more baskets by moving a portion of your savings into a safe haven like physical precious metals. An allocation to gold can help reduce the volatility of even the most uncertain economic times.
Ultimately, only you can determine your risk tolerance. Invest too conservatively, and you’ll lose out to inflation and limit possible growth.
Invest too aggressively, and, well, you could lose most of your money and give yourself an ulcer in the process.
When you have the right balance, you’ll know because you’ll be able to stop worrying about it and sleeping better every night.
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ALL savings are at risk. The commies in power WILL eventually decide to steal ALL our savings…in every form out there…and happens us a worthless IOU. It’s not an if….it’s a when. They simply CANNOT help themselves.
The magic political ingredient cannot be denied by religious or secular lies. There are consequences to cultural impotence and emasculation. Most liberated women are to dense to realize their political expiration has come and gone. Will be fun hearing about the trannies winning the gold and moorish love gone bad. lol
Apparently nothing happened to equites in 1929. Nothing at all.
OT: I have not been around much lately, the ole get a life thing. It is old news to me to talk about the same pressing dangers as if we don’t know what they are. What can we do?
I have yet to successfully use encryption with keys in a web-of-trust scenario. I virtually have no friends and certainly no friends who see the same dangers and want to communicate securely. AFAIK, all our emails are recorded and if you don’t encypt them, they are in the clear. That is the normal email protocol, which sucks.
I have a new computer with linux and an Intel CPU. There is a great security hole on Intel and AMD CPUs: they have a hijacker mini-CPU embedded in the CPU. If you buy from System76 or Purism you can get a disabled ME, but you will be set back in hardware lineage by 2-3 years or more, respectively, but check yourself if seriously considering a purchase. No warranty is express or implied herein.
ZaReason went out of business. I don’t think they disabled the Intel ME, but perhaps they could have gotten there if they had the financial support. Dell has a few offerings that can come with Linux. I don’t expect they disable the backdoor.
I saw a video that I think would be useful for a post here. The yt title is “Spyware at The Hardware Level – Intel ME & AMD PSP”. It’s 10.5 minutes and well articulated. If you are ignorant of such things, might be worth a look.
I think being the grey man will be useful. There is a lot of data the government is collecting. I’m long done with trying to save subhumans from their fervent desires of herd social norms and first-world afluence. I don’t wish to be paranoid, but it’s hard of course, but a cardinal rule of security is d0n’t defeat yourself. I wanted a powerful computer and I took the risk.
My only advise on disabling the backdoor is to unplug the ethernet cable and lay aluminum foil over the laptop with wifi when not in use (battery power will support the ME or AMD’s PSP). That does not stop the backdoor when you need the Internet and does not really solve the problem, but maybe it could help. I am guessing. The foil trick worked on my old cellphone years ago.
Those are my thoughts. Time to get more John Conner IMO. What can you do. Repetitive stimulation is not my thing. I don’t particularly want my pseudonym on a post, BTW. Whatever. If I am concerned enough, I just won’t type.
At this point the problem is the solution. Things (American social norms and politics) have never been acceptable to me, so I try to embrace this decline mentally. Mixed results. I’m gonna enjoy the incredulous suffering of the too-much-to-lose useful idiots. Can’t stand talk radio anymore. And I’m ranting. Dougster out.
Addendum: I am able to disable the Intel ME in my BIOS (if its not lying to me:). Happy camper. Not sure how reliable BIOS switching is. Trying to flash the CPU to disable it is technically difficult and risky and for newbies will probably result in a ruined CPU costing $500 or more.
Doug, you are miles ahead of me-I’m just an old country boy who does the bare minimum to stay connected to algore’s internet thingy; I prefer not to be a slave of any kind, whether it be to a machine or to a government.
So here’s the deal, all occurring in the last couple of weeks:
1) Microsoft supposedly is readying the release of Win 11 (have no idea if that is true or not), but that could be a problem for machines with older operating systems. How many followers out there have Win 7 machines that were forcibly upgraded by Microsoft to Win 10 at the very last minute in order to remain functional way back when? What are the odds those older machines won’t work with Win 11?
2) Firefox again has an incompatibility with allowing access to AOL e-mail (fact). Or could it be the other way around: AOL throws a monkey wrench in the log in process for Firefox users? It has happened in years past.
3) This one is cute: my daily “pretty picture” screen that comes up before log in to the computer now gives all kinds of subtle messages (sometimes called propaganda) from gates-the most recent extols the wonders of owning a modern computer. Well played, gates; but why don’t you just tell us that you are doing everything possible to make our existing hardware and software useless so if we want to stay in the game we will have to buy all new stuff as our trusted old stuff has been monkey wrenched, and hard. The new stuff should be called “Spymaster”.
Final touch: the incessant commercial “messages” on talk radio drove me away from that medium quite a few years ago.
Me thinks you have a familiarity with technology, Hank. Yes, the commercials. I recommend (for now) Debian Linux. What’s disturbing is that libtardfa has a linux distro called MX. I would not touch that with 10-footer.
I am surprised both that people still use firefox and that it still works at all.
AOL email? really?
Of course, talk radio sucks. You can’t offend the ((owners)) or the advertisers, so ALL KINDS of topics are off the table. Everybody talks around any important issues. Any “breaking” news, you can find more uncensored sources that are trustworthier.
I can sum up this post and so many others: “We can’t afford the gravy train.” It disappoints me to read all these erudite analysis and the elephant in the room is no where to be seen.
Fully agree.
We diagnose symptoms ad nauseam while never identifying the source.
Pavlov’s dog has something to do with it I suspect.