Posted on 11/30/2004 6:52:10 PM PST by leadpencil1
ARROYO GRANDE, Calif. (CBS.MW) -- Yes folks, there really is a new psychology haunting American investors. It tells us that 80 percent of you are "paralyzed," a syndrome that's endangering not only Social Security privatization and the proposed new "ownership society" but also the economy, markets and American Capitalism.
How can we have an effective system if 4 of 5 investors are paralyzed?
We've touched on this phenomenon in seven books, 1,200 columns, and in reviews of the new behavioral finance research of Nobel prizewinners like Daniel Kahneman and other academics trying to explain the emerging new investment psychology. But fancy theories aside, investors themselves are now warning us loud and clear.
Investors are screaming: "Help, we're paralyzed!"
Paralyzed, and worse yet, in denial about it. Instead, our brains are programmed to consume, to live for the moment, to fanaticize a new bull market, act macho, drive monster Hummers and Excursions, buy propaganda about winning a costly global war, load up credit cards with holiday gift purchases ... and stand by paralyzed as Congress leads the way, loading more and more pork into already bloated federal deficits.
Get it? Today investors exist in two parallel universes: We're addicted to short-term consumption, but paralyzed when it comes to long-term saving and investing. We didn't get that way overnight, either. In the early 1980s, the savings rate was over 8 percent' today, it's 1 percent.
Privatization won't cure boomer paralysis
Paralysis now defines the core of America's new investor psychology. That conclusion became clear as I read the new Guardian Life Insurance Company/Harris Interactive study: "Beyond Behavior: Why Boomers Underfund Retirement."
Behavioral finance professor Frank Murtha summarized Guardian's study: "Baby boomers are in a state of financial paralysis. They don't know how much to save and don't understand some basic principles such as compound interest and adequate returns, so they are doing nothing!" That's 60 million boomers paralyzed!
And the Guardian study is just one of four that suddenly popped up from the financial industry in recent weeks:
Putnam's "Portrait of the Recently Retired" study says retirees are "a money-worried, cash-strapped group, dependent on Social Security." Ouch! That reminds me of an earlier study which concluded that half of all retirees over 65 would be living in poverty but for their Social Security check.
Allstate's "Retirement Reality Check:" They say only 20 percent of Americans are saving enough. And 56 percent identified themselves as "Survivors," wishful thinkers hoping they won't be voted off the island before landing in a cemetery.
Merrill Lynch's study is a bit more optimistic; one-third in its survey was confident they're on track for a "comfortable" retirement. Apparently, the other two-thirds are facing rather uncomfortable retirements.
All these studies remind us of the finale of the 1982 Michael Jackson album "Thriller," with Vincent Price's voice-over rap echoing a prophetic warning:
"Darkness falls across the land. The midnight hour is close at hand. Creatures crawl in search of blood."
Too little too late for 60,000,000 boomers
Some readers say this isn't prophetic, it's just journalistic paranoia. But that's likely from one of the 20 percent critiquing journalists (or psychologists and behavioral finance experts) who try to penetrate the paralysis of the 80 percent. To them we're seen as doomsayers.
Privatization is the popular solution pushed by the 20 percent already on track. Wishful thinking. Sounds good, but unfortunately the "ownership society's" vague schemes won't help the average investor very much, just tighten the grip of the wealthy 10 percent who already control over 90 percent of America's assets.
Today 72 percent of us, average Americans, have portfolios worth less than $50,000. Already too little. So even if privatization works it will come too late for America's 76 million Boomers to catch up fast enough using Social Security accounts.
We're now facing a dangerous dilemma: On one hand, the 20 percent who have a retirement strategy don't want or need much help. They know what to do and are doing it. They are disciplined, guided by a long-term strategy and systemically working toward retirement.
But the other 80 percent are paralyzed. The thrill is gone. They are lost in ineffective short-term fixes. They don't even know they need help, or more likely, according to the Guardian study, they don't know what to do with the help already available to them. Sadly, their paralysis has made them incapable of changing. That's frustrating because we'd like to help them, but they are trapped in their paralysis, and beyond reach.
How to reach paralyzed clueless boomers?
Bottom line: The media can reach and teach the 20 percent who already look to news and information. What they're doing now for their retirement is working for them. They're our primary audience. With them, we're just singing to the choir.
But what about the masses, the other 80 percent of the 76 million boomers? That's 60 million boomers who are nearing retirement, yet paralyzed, clueless and underfunded. Worse yet, there are another couple hundred million paralyzed investors waiting in future generations, and a new "ownership society" and privatization won't help them much either.
Frankly, this new psychology of investing is extremely dangerous for the health of our economy, markets, the proposed privatization of Social Security, an idea of a new "Ownership Society" and even American Capitalism. We know how to help the 20 percent minority. But what can we do for the paralyzed 80 percent majority?
and if I die young, what good will my retirement do me? On the other hand if SS is privatized, some of it can go to my kids!
These guys ever hear of the dot.com bubble?
What has always characterized the Boomer generation (not all of them, but too many of them) is that they think they are entitled. They have always gotten what they wanted and screwed everyone else, first their parents ("Don't trust anyone over 30," the mantra of the 60s) and then the younger generations that followed them.
During the clinton bubble, they got used to thinking that the stock market owed them 15% a year.
Presumably they figure that if they live high off the hog now, someone else will have to take care of them after they retire. If they think about it at all.
Maybe look into discount brokers, like Charles Schwab.
Blow it out your "fanaticized" Hummer.
but we are not paralyzed....not rich, but at least we save and we are not addicted to "things"......
part time jobs might help them
You may know something about yourself that most of us do not know about ourselves. Wisdom would ask, what if I live a long time and have not prepared? Which would be preferable if there is a choice?
I saw that zingere as well.
Point made, but part of the issue with Social Security is that it will be funded. Right now, SS is on the fact track to bankruptcy. I won't get any of what I paid in when I retire. If I had the option to invest my SS investments, I have a chance of getting that money back.
"buy propaganda about winning a costly global war"
That one line was enough to make me lose interest in what this dude is writing. Actually, the whole article is full of redundency.
Also, doesn't this person understand that the "controlling investment option"(can't think of proper term) being proposed on social security has nothing to do with Baby Boomers. This is something for those well under 40 with many years left to contribute.
Then you're not really a Boomer. You just happened to be born then.
In spite of the disingenuous liberal shots in there (e.g. no alternative to the maw of Hippie Grey Panthers sucking up Social Security, etc) there is one thing I wanted to highlight: RE: Baby boomers are in a state of financial paralysis. They don't know how much to save and don't understand some basic principles such as compound interest and adequate returns, so they are doing nothing!
So here we have the main ground currently in charge of most of the management infrastructure in both the private and public sectors, and they don't understand compound interest. Personally, I would be in favor of the return to certain aspects of voting qualifications, such as property ownership / demonstration of a minimum level of assets. No income, no vote, on the dole, no vote. So much for welfare for idiots who can't plan.
In the past week or two I've bought......
MACE....COSI....ONI....
If you learn how to read charts and pick good companies, anyone can make 50% or more returns over 6 to 12 months in this economy.
Sure beats the CDs or passbook accounts.
And all the tools you need to succeed are free on the internet.
Any guess as to why this story has a dateline of Arroyo Grande, Ca? I know the town pretty well (used to live there, house grandfather built is there, house grandmother was born in is there, etc. etc.). It's a small and scenic town on the coast near Pismo Beach, beloved in the past 15 years of folks from the city looking to "escape."
ground s/b group
7 huh? If only you had posted your views on FR, the whole world would have known!
You could try DRIPs that let you make additional cash purchases at a low charge or none.
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