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Side-Effects of a Recession

My sister recently sent me a NYT article discussing the cultural effects of a recession. Toward the end of the article, the author cites research showing that “a generation that grows up in a period of low stock returns is likely to take an unusually cautious approach to investing, even decades later.”

That scares me. I’m afraid that investors will “learn” from this recession that the stock market is a dangerous place for their money. As you know if you’ve been reading here for a while, I don’t see an “unusually cautious approach to investing” as a good/safe thing.

Today’s investors are faced with unique challenges:

  • Longer retirements than any previous generation.
    • More years of retirement quite simply means that we’re going to need more money to spend.
    • Decades of inflation will eat away at our investment returns and demolish the value of assets kept in “safe” investments.
    • We’ll likely incur huge amounts of medical costs during our last couple decades of life.
  • No traditional pensions (for most of us anyway).
  • Legitimate concern as to whether the Social Security system will be able to provide the benefits that it has promised (and that we have paid for!).

In short, we need a lot of money in order to be able to retire. (For example, for anybody my age, less than $2 million is unlikely to be enough unless you have passive income–via a pension or a business–or you plan to rely at least in part on Social Security.)

There’s simply no way to accumulate such a sum of money without a stock-heavy asset allocation during our working years.

Boy oh boy do I hope that my generation doesn’t swear off investing in equities.

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  1. Way to put things into perspective. I’m with on the stock investing, so at least there will be two of us in our generation trying to fight the good fight.

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