Your Life’s Biggest Gamble Need Not Be Blind
by Richard Root

“Good planning can help you take control of your finances. By understanding where you are today, and where you want to be in the future, you can make smarter financial decisions.”

-AXA Financial Corporation, A Fortune 500 Company

In this rapidly changing world, where the average individual will turn to a dramatically altered career on the average of every seven years, we fret – more and more – about our future stability.  What will we do when we can no longer work? Are the “days of old” truly gone when a man or woman could retire and live out the remainder of his or her life merely on the sustenance and security of 40 years of dedicated and often arduous labor? Fear mounts in many citizens’ minds as we hear that our nation’s social security system could be bankrupt within two decades. This might catapult even faster as the “baby boom generation” calls on Uncle Sam in ever increasing droves.

Once it was true that a man could be secure with his life’s work and life’s retirement plan invested in the one large and strong company to which he devoted his entire working years. However, in the wake of recent scandals, such as what we witnessed with Enron, Inc., we are now realizing that our guaranteed invested retirement plans are not guaranteed at all. In fact, recently it has often been the case that our earlier most time-honored companies are the ones that now stand the greatest chance of belly flopping. For example, Ford Corporation can no longer compete with relative newcomer Toyota due to its “legacy” bills. Presently, Ford must pay nearly double in retirement benefits what Toyota pays. Toyota has not been around long enough to have generations of its workforce move into retirement and siphon off its funds.

With this warning in mind, many people planning for retirement have turned to individual investing. Until the year 2000, this seemed like an obvious choice for the money-wise. The stock market was soaring, and many working Americans became millionaires in just a few years. However, with our market crash in 2000, we realized that this type of investment was not fallible. Still some investors have been savvy enough to outfox the market once again by turning to “alternative investments,” such as “hedge funds, private equity funds, commodities and commercial real estate.” Giant investors such as pension funds have done the same. “Many investor now see alternatives as the cure-all for the boom/bust cycle of [stocks] and the low yields that bonds offer,” says Jan Loeys, head of global market strategy for JP Morgan Securities.  However, even here we see that there is a ceiling. Too many investors are in the “alternative market.” Housing, for example,  has presently priced itself well beyond its true value.

So, what is the answer for the average middle-class American who simply wishes to live “comfortably” in his or her “golden years?”

Diversification.

This single concept has held its value through every type of market and every type of twist and turn of our sometimes combustible world economy.  One should not abandon faith in the 401k of their career company. However, one must be wise to consider that even the most seemingly safe corporation might utterly change in the next forty years. The oil industry, for example, might be robust now, but who is to say that we will not turn solely to wind, water, and nuclear power in the coming decades as our oil deposits run dry or are cut off more rapidly by warfare? We must make some investments of our own. We must try our hands at the stock market ourselves, but be wary, as Michael Mauboussin of TIME Magazine cautions, that – as is the case now – “the most ‘hot’ sectors have already cooled. You need to make a braver move: look hard at ill-performing areas.” We always must remember that there is no “sure shot” in life. Our present and our future are always in our own hands. With this in mind, we continue to follow our mantra and “diversify.” Do not give up on alternative markets, but do not invest your life-savings in this realm only. Diversify. And keep in mind: old world rules do not apply to our rapidly evolving economy. As Robert J. Samuelson points out, “Old, established firms – despite ample capital and technical know-how – do not dominate new industries. Google, eBay and Yahoo rule the Internet, not General Motors, Sears or Disney.”

“We must also look to the once standard form of investment of our grandfathers - life insurance - which fell out of vogue in the past few decades in favor of term insurance,” states Ken Henderson of AXA Financial Corporation. There are now many forms of life insurance that act as tax-free investments. “No monies taxed going in, and no monies taxed upon withdrawal.” And one can withdraw within one’s own lifetime. This, perhaps, is one of the more interesting forms of investment overlooked by many, which both outfoxes market trends and federal and state governments at the same time.

Along with diversification, we must remember, too, that we can receive the most advantage by being nimble on our feet, by remaining aware of market trends, company reports, and law changes. The only true way to remain most secure is to mesh “diversification” with “education.” We must read. We must listen. We must watch intelligently. Perhaps - if not for any other reason - this is why our college education is our most astute investment. Here, we learn to read and listen and observe; we learn to interpret this essential information, to synthesize and evaluate, and create something that is all our own. Our education allows us to be truly individualistic, truly adaptable, and truly American in a world that demands us to be so, forever perched on the frontier of an ever-changing environment that metamorphoses at an ever-increasing rate.