Many of you have asked for a repeat of some of the ideas that are often fodder for my students. A favorite of mine is how some investors collect endless quantities of data, analyze fundamental and/or technical statistics until they are dizzy, which are then followed up by reams of computer projections.
Unfortunately, until the race is run you will not know for sure if your analysis and projections were accurate. Prior to that point, subjective human judgment must carry the day.
Although modern investment analysis would be severely set back if it were not for the ability of computers to carry out innumerable mathematical tasks on a repetitive basis, there is still no substitute for human judgment.
The downfall is that the human intellect is not immune to expectations, and expectations are the "coin of the realm" on Wall Street. Expectations generally include a large dollop of hope, some dreaming and maybe a prayer or two. However, it is not until those expectations are bathed in the harsh light of reality do we see the true picture of where we are and how we got there.
It is no real wonder that so many people are caught up in a variety of financial difficulties, whether it is falling victim to a Ponzi scheme, investing in techniques beyond their skill level or simply following poor financial advice.
For example, according to one survey, a third of all adults have no non-retirement savings. Furthermore, a quarter of all adults have no savings for retirement. One in five people have said they can never afford to retire.
One of the great retirement myths, assuming you can retire, is that upon retirement you no longer have to pay taxes. Sorry, but the Uncle's tax collection department never sleeps, much less retires. Add in the Pollyanna expectation that just having a portfolio, even if it is unattended to, will save your bacon and there is trouble in the Land of Oz.
Compounding is indeed a powerful force. However, failing to account for and accept market volatility has taught many would-be investors a bitter lesson. Volatility, however, is not a reason to abandon your portfolio. The key is to never disregard the precept of investment quality and the requirement for asset allocation.
Intelligent investing always does well against the never-retire symptoms, while greed will restrict even the best of intentions. Yet, some optimists continue to assume that one day their below-average income will exceed their above-average spending. We call that the ostrich approach. That lack of foresight also lends itself well to the work-until-you-die lifestyle. Do you want Wal-Mart's apply-by-phone number?
While you are deciding about the need for starting or adding to an investment program, keep in mind that the upper-range estimate of out-of-pocket medical expenses in retirement for a 65-year-old couple is $235,000 to $376,000. Those figures double for a couple with above-average prescription needs and only Medicare and Medicare supplements.
You might want to think about buying a larger piggy bank.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls are accepted between 9 a.m. and 3 p.m. at 1-941-706-3449.