If You Missed the Six-Year Market Rally, You’re not Alone


In the midst of a six-year market rally, more than half of Americans don’t own any stock investments at all, potentially missing out on a big investing opportunity to build retirement savings and overall wealth, according to a new Bankrate Money Pulse survey.

It’s often said that a rising tide lifts all boats. “But a rising tide isn’t much help if you don’t have a boat”, according to Claes Bell, CFA and Mobile Editor at Bankrate.com.

Bell cites six factors contributing to this behavior:

  1. Sitting on the sidelines
  2. Lost years for millennials 
  3. Why we’re not taking stock
  4. Failed financial education
  5. Mistrust of the markets
  6. Many not paying attention to retirement

From my perspective, three of these points are especially critical to the financial planning success of my clients; MANY NOT PAYING ATTENTION TO RETIREMENT, SITTING ON THE SIDELINES and MISTRUST OF THE MARKETS.

Many not paying attention to retirement

Planning for retirement takes time. I specialize in retirement planning, so it’s not surprising that I believe that this is one of the most important factors.

Actual planning for retirement can be done reasonably quickly, but implementing an effective plan usually takes years, even decades for those that are early planners. The interesting thing is that it is so much easier the earlier you get started. I have four children and I have always told them, “The hardest part of any project is getting started.” And like any successful project, the more you pay attention, the better the results. Consider two couples, thinking about retirement, but at very different points in their lives.

George and Pauline Smith, a 60 year-old couple, are thinking very seriously about retiring in five years. They have never met with a financial planner before, but now that they are approaching retirement, they feel it may be useful to get some input on their plan. They meet with a financial planner and find that they need to save an additional $200,000, over and above their current retirement savings plan, to support their planned lifestyle for retirement in five years. That means they need to save an additional $2,941 per month, assuming that they earn 5% over the next five years, to have $200,000 added to their retirement savings.

In contrast, Fred and Jane Jones, a 40 year-old couple, just met with a financial planner for the first time. They learn that that they need to save an additional $200,000 over the next 25 years, in addition to their current retirement savings plan. However, they only need to save an additional $336 per month, assuming that they earn 5% over the next 25 years, to have $200,000 added to their retirement savings.

Which couple is going to have the better chance of success? That’s pretty obvious, right?

Having a plan which specifies a disciplined savings plan and an appropriate investment allocation is critical.  However, it is also very important to monitor progress toward intermediate goals and adjust the plan, if necessary, to achieve the longer-term results.

Sitting on the sidelines

The Bankrate Money Pulse survey found that 52% of Americans report not owning any stock-based investments. Robert Stammers, CFA and director of investor education for the Chartered Financial Analyst Institute, is not surprised. He states that many Americans “see themselves as savers and they worry about capital preservation and don’t take the risk necessary to achieve the returns that they need to fulfill their long-term investment goals. The average person has less than $25,000 saved for retirement. So people certainly aren’t prepared, and that’s just making them less prepared.”

Reflecting back to the Smith and Jones families, the additional savings required for their retirement may not be their biggest challenge. Achieving a 5% annual return in the current environment may be the bigger challenge, especially for the Smith’s. Interest rates are at historical lows, making it more difficult to meet that goal over the next five years. Having a retirement plan and saving early is critical, but the addition of some exposure to equity-based investments can help investors achieve portfolio returns that exceed inflation, potentially increasing their personal wealth over time.

Without the higher returns realized from some exposure to the equity markets, the longer-term issue for these couples may be their purchasing power. Inflation increases the cost of living, thereby reducing purchasing power by an average of 3% over time. Since that rate currently exceeds the interest rate on any type of guaranteed savings account, individuals are forced to take more risk in order to beat inflation. The low interest rate environment is likely to stay for some time, longer than most “savers” would like to see. So, some exposure to the equity markets may be required for many in retirement.

Mistrust of the markets

With two major (+45%) corrections in the stock markets since 2000, coupled with illegal trading, high-speed trading, inside information, and fraudulent brokers and advisors, it’s no wonder that the general public mistrusts the markets. Many of those that lost a material amount of their savings in the stock markets have not forgotten, and are reluctant to put what they have left back in those same markets. Regrettably, the media has helped prolong their memory. “It’s funny because most of the people who stayed in the market actually did OK,” Stammer says. Unfortunately, fear sells more in the media, so the major financial networks tend to focus on that instead of how well portfolios may have recovered.

We can learn a lot from both the Smiths and the Jones. Starting a disciplined savings plan early in life, with an appropriate investment allocation is vital.  But that is not enough. Monitoring the progress of your plan periodically is also just as important. These essential steps toward sound financial management might make the difference between you just surviving in retirement vs. enjoying your desired retirement lifestyle. Don’t wait until tomorrow to develop your plan. And, if you already have a plan, why not consider getting a second opinion to make sure you are still on the right track?