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?
You sound like a Ken Roberts/Ted Warren graduate...
Congrats to you for not aiming for a 12 percent return!
RE: They need to do this now.
I agree.
I have a .45 caliber retirement plan....
It's pretty common in Alaska. Anybody seen Ed lately? No. Must be out hunting.
That is what the star of the South African movie "The G-ds Must Be Crazy" did.
May our souls find sleep is rest.
Guess we'll find out eventually. No hurry.
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