The Myth Behind Your Retirement Portfolio | Penny stocks to watch

Investors have sought the advice of stock brokers, financial planners, and other so-called financial experts, to aid them in planning for their retirement. For decades brokers, financial planners and other adviser?s counsel their clients on the fine art and science of proper retirement planning. They all tell a version of the following story: in order for you to have the necessary funds you will need at retirement, you must begin putting some money into an investment account of stocks, bonds, mutual funds or a combination of those asset types every month, and you?ll need to continue putting a monthly amount into your investment vehicles for as long as you can, up and until you retire.

The story continues to make this assumption; over the years you will earn an average annual rate of return of 8% on your investments. Your adviser would then explain that if you saved $800 each month for 360 months (30 years), and you were to earn an average annual rate of return of 8%, you would be rewarded for your discipline and financial acumen with an amount approximating $1,087,519. If you spent an average of $60,000 per year at retirement, this amount would provide you with 18 years of retirement funds. Gee, $800 per month now and a little over a million at retirement? not bad.

You would save approximately $288,000, but you would be able to spend $1,087,519 (the difference being $799,519). Everyone loves this story, and why not? But there is another side to the story. If you think for a moment or two, you would realize that the entire scenario described is dependent upon assumed earnings and assumed exponential compounding of those earnings. In essence, the value we are placing on our assumptions is more than the actual amount we are saving. That is a critical issue most everyone misses.

Millions of people are currently relying on the merits of this sales story and hoping it is true. The story says that we will be rewarded for saving diligently, and combined with compounding interest of 8% per year, we will have this magical, huge sum of money for retirement. It?s that simple. It?s basic financial planning. The investment companies and financial planners know all too well how enticing this story is. Nearly every pension IRA, and other financial retirement vehicle, whether through government or private fiduciaries are all based on some version of this story.

The questions you should be asking are: how reliable is this story? Does everyone get to exponentially compound all their earnings, all the time? Does it always come out as the financial advisors said it would?

Finally, you must beg the question; where will all the billions come from when 80 million plus baby boomers all want to cash out their compounded earnings and principle?

Even the most astute financial advisers would have great difficulty answering that particular question. The answer is: it comes from our share of a vibrant, growing economy. And if that is true, then the number we should be most interested in learning, is the real rate of growth of our economy. For decades, the real economic rate of growth has been 2%. You come to the average 2% figure when you subtract inflation from the core economic growth rate. And, you must subtract inflation to compute the real growth rate of the economy.

Remember the assumed 8% average annual rate of return? Now replace the 8% with the real-world 2% average growth rate of the economy over the past few decades and what do we get? A 2% average real-world return on our investment gives us approximately $389,454, not the $1,087519 we were promised. That is a 64% decline in estimated value. We could live on the new amount for only 6.4 years given the identical spending of $60,000 per year in retirement mentioned above. Shocking to say the least.

You did what the experts told you to do. You saved and saved, and put everything off until your retirement years. You didn?t ask for more than what they told you, you only wanted what the experts said you would get at retirement. The probability of 80 million baby boomers all coming to retirement in the next decade, and all of them seamlessly able to cash out their earnings plus compounded interest of 8% per annum is? well, not possible.

What is the answer? It starts with taking what you have and removing it from mutual funds, bond funds, exchange traded funds and the like, an begin looking at alternative investments that are different from the traditional investments laid onto millions of investors over the past 30 years.

Some investment portfolios might consider gold, silver, various commodities, and low or no commission based index funds designed to simply mirror the major averages. If you make no changes after reading this article, the onus is on you.

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Source: http://pennystocks-towatch.org/the-myth-behind-your-retirement-portfolio-2/

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