Tuesday, October 7, 2008

Fear Mongers: Ben Bernanke, Mainstream Media, Leftist Democrats, et. al., and Your Retirement

Ben Bernanke actually had to nerve to "testify" today that there is too much fear and panic in our financial markets, and I guess in our country, and that everyone should remain "calm".
 
What have I been saying for weeks in this blog?  Right.  I have been saying that fear is our enemy.  But who was one of the primary agents of fear, who helped push through this Wall STreet bailout bill with an unprecedented campaign of fear--claiming that our entrie financial system was on the verge of collapse?   Right.  It was Fed Chief Ben Bernanke!!!!  The man is and incompetent fraud and failure.
 
Remember when I asked the question, weeks ago, whether Ben Bernanke and Hank Paulson are the worst failures in the entire history of world finance?  I can now answer that question definiteively.  There is just no doubt.  Bernanke and Paulson are the worst failures in the history of world finance.  Their names should go down in infamy, in all future history, and I am comfident they will.
 
But what about leftist Democrats, who have talked down this economy for years, spreading fear and despair for their own political purposes--even as they blocked reform of Fannie Mae and Freddie Mac?   What about the mainstream media, who have been even more intense fear mongers in talking down the economy, thinking that they were doing the bidding of the leftist Democrats (as they probably were)?  Well, they are still doing it.
 
After the mainstream media talked "recession" for the past 5 years, even though it is not even established that we are in a recession yet (although it is now fairly likely), the mainstream media is now talking "depression", and trying to get as many people as possible to respond to that fear word.
 
Yep.  Do you want to know who is more responsible for our present "crisis" than even the greedy Democrats pushing free and easy mortgages--even more than the greedy people (also seemingly mainly Democrats these days) on Wall Street?  It is the fear mongers  The most consistent fear mongers have been leftist Democrats and the mainstream media, although they have just been joined by establishment Republicans in the push for this Wall Street bailout. 
 
And leftist Democrats are still at it.  They can'thelp it, even when their fear mongering may be the self-fulfilling cause of a depression that otherwise is not even close to occurring. 
 
I saw a Democrat committee chairman (redundancy in referring to Congress, since all committee chairmen are Democratic), on CNBC.  He spread the usual fear and doom and gloom, for his own political purposes--even though that is the kind of thing that Bernanke now says threatens the economy (after Bernanke played a major role in unleashing the beast totally from its cage). 
 
This leftist Democrats said that 401(k) plans were being "destroyed", and taking taking the retirement of Americans with them.  Nice for confidence, isn't it?  Then he said that we needed to basically do away with 401(k) plans altogether, and restructure a "mandatory" retirement account for everyone, where every person would be required to put in 5% of his earnings (probably matched by an employer--also probably required). 
 
Yes, you heard right.  This leftist Democrat wants to privatize Social Security by setting up a separate, government controlled, "private" system, while keeping the totally government Social Security system the way it is.  Isn't this a marvelous example of leftist Democrats at work? This one wants to eliminate private, diverse 401(k) plans in favor of a government controlled plan established by central planners like him.  He counts on your present fear, that he is helping to spread, to cause you to look favorably on this further government power grab. 
 
Oh. did I mention that the mainstream media is trying to help out this leftist Democrat by talkig rubbish about 410(k) plans  Yes, it is "rubbish" to talk about 2 trillion, or half a trillion, or whatever number of dollars being "wiped out" of 401(k) plans.  The whole point of a 401(k) plan is as a retirement plan.  That means that you should not even be paying much attention, other than "diversification", as to what you 401(k) plan is doing.  It is irrelevant whether it is down 50% this year.  What matters is what it is when you need it for retirement, and there will be many ups and downs along the way.  As you near retirement, you should take money out of riskier stock investments, and put it in government guaranteed interest investments, when the stock market is in an up phase (preferably).  The idea is not to be risking your gains as you near retirement age, if you have gains.  You should never be deluded by gains over a short period to make ever riskier invetments.  And you should not be deluded by short term losses into changing what has to be a long term stategy.
 
 
I actually heard a fear mongering Wall Street "expert" suggest that people take more money out of stocks now, and put the money in caseh--in their 401(k).  That is an example of what passes for "intelligence"on Wall Street today.  the man was an ass, and a totally stupid idiot.  
 
Lesson 1 for retirement plans:  se up a diversified plan for your retirement investments, and change that plan only when approaching retirement age (or financial circumstances force you to change it, which you shoul dtry to avoid).  You should diversity to start with.  That means investing in brad based mutual stock funds, bond funds, and government securities/funds in the ratios with which you are comfortable.  That is true unless you want to play the stock market with your retirement funds--in which case you are a gambler like me and have to accept the consequences of your choice without crying about it. 
 
After making your initial choices, you should not change your long term plan, unless something other than short term stock moves makes you believe the plan could be better, until you reach an age where you start to get out of risky stock investments to avoid having your retirement affected by short term losses. 
 
What happens if you change your allocation of assets when the stock market is down?  well, you should probably be putting in money every month (best), or at least every three months or every year.  The idea is to average out good years and bad years in the stock market, with the idea that there will be more good than bad, over time (true even for younger people who started in 1928, before the crash). 
 
What happens if you take money out of stocks, and put it in cash, because the market is falling?  You are acting like a stock trader.  Unless you think you can figure out exactly when the market will turn around, and go up (in which case you don't need me or any "expert"), you are going to lose money every time the market goes down.  Then you are going to switch to cash.  That means that you will not make money when the market turns around and goes back up.  You will probably be convinced to get back "in" the stock market just as it reaches a "top" again, or near a "top".  Then you will lose money again when the market goes down.  You will get out again into cash, and lose the opportunity to gain again when the market goes up--and so on and so on and so on.  You will never get it right, unless you are lucky.
 
The secret is not to care.  Sure, you will feel good if your retirement investments are "up".  And you should reallocate some gains into other investments, if your stocks gain a lot (to keep the balance of your original plan).  But you should not change your original plan because of stock market losses. That is exactly the time when major gains are possible.  You should keep investing at the same rate, and keep the same mutual funds you have.  You might even transfer some funds from "cash" in order to balance out the investments with the original allocation of the plan. The idea is to always be able to participate in stock market rallies, just like you participate in the declines.  That is the only way to be sure you get the gain, over--say--30 years that history suggests you will have (if you follow this advice, and keep the plan the same, including putting more and more money into "cash" type investments as you get older (hopefully putting money in "cash" when the stock market is in a reasonably good period, which means not waiting until you need the money--the "cash" refers to bond funds, government securities, or other investments in the 401(k) plan itself).
 
Do you understand why that Wall Street "expert" was a total, stupid idiot?  He was talking short term action on a long term plan--a major mistake.  If you plan long term, you cannot let that plan be disturbed by short term events--even major losses.  If, for example, you are young and put all of your retirement funds in a stock market mutual fund, you should not withdraw money from stock market funds (I am not saying never change stock market funds, but you should be careful about doing it because of short term results).  You should keep to your plan of keeping your funds invested entirely in the stock market--should be through mutual funds unless you want to be a gambler.  Many experts would advise to diversify into bonds and government securities, even while you are young, but I think there is nothing obviously wrong in a really young person putting all of his or her retirement funds into a stock market mutual fund.  But if you do that, you cannot panic and get out of stocks just when they are in a major decline. You need to hold to your original strategy, and keep investing at the same rate (to extent possible).  To do other wise is a major mistkae--the exact, emotion based mistake that his Wall Street "expert" recommended. 
 
You see where the media is getting it exactly wrong to advise panic, even apart from their political agenda.  They are making a depression more likely , and they are also advising people wrongly.  People should be advised to stick to their long term plans, and not to let them be affected by short term declines and emoction  Any other advice is just wrong, and that is not a matter of opinion 
 
Now events may convince you that you made a mistake.  But that is a different thing.  For example, it is a mistake to invest retirement funds in only one company.  You may become aware of that.  You may decide it was a mistake to invest all of your retirement funds in the stock market, even through a broad based mutual fund.  But you should be very leery of making that decision in a market decline, and should definitely not change again when the market goes back up . You need a consistent plan, and you need to stick to it.  It is wrong to change a long term plan just because of short term events (unless those events reveal a flaw, beyond mere loss of money in the short term, in the original plan).
 
This is all not as complicated as I have made it sound.  Just make a long term plan, and stick to it absent being convinced by logic (not short term events) that it needs to be changed.  Any "expert" who gives you different advice than that is not worth listening to. 
 
In the meantime, ignore the fear mongers.  That means ignoring the fear mongering politicians and the fear mongering media.  Good luck.  I admit you need a little stamina here, as they do their best to wear you down.

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