DescentBB

Lothar wrote:I think it's easy to blame marketers, but at the same time, we have to blame everyday people. It's not like we never had a chance to hear grandparents or other relatives who lived through economic bad times say "you should save money". It's not like we never hear banks encourage savings or retirement planning. It's just that we as a society choose to listen more to the "buy the maximum you qualify for" type of messaging instead of the "buy what actually makes sense for you" messaging.

Oh, I remember the stories from my grandparents. They all lived in small houses and got along fine on very little. In fact, they grew and canned a lot of their own food. They were Depression era people, so they were used to doing without a lot of stuff because when they were young and of reproductive age, they had almost nothing during the Depression anyway. They were used to not having the money to buy extra disposable things. They were forced to be frugal so long it was considered normal. What changed was when our soldiers came back from WWII, married and had kids. Lots and lots of kids. The rise of the new middle class. They wanted things better than what their parents had because they remembered the hardship and the lack of income. So the economy began to cater to that new desire and because those returning soldiers were able to obtain good jobs and make good money after the war, the economy grew. We won after all. Spirits were high, testosterone was flowing and the Depression was history. Time to live and splurge a little. They now had enough extra cash left over to spend on "things", stuff not necessary for just surviving. All this new found decadence was considered abnormal to the Depression generation because I remember my grandparents complaining about the younger generation in the 1960's having and wanting too much stuff and bigger and bigger houses.

So I guess when you think about it, you can blame the WWII and Boomer generations for wanting more than their Depression era parents and grandparents had. They'd already lived with almost nothing, so having more was desirable, like a new drug habit that needed feeding. It didn't take long for the marketeers to see the gold mine just waiting to be tapped. Wanting more and more things and bigger houses and the economic growth that it would supply that desire became the new normal. The problem we have is now that it keeps feeding on itself like a growing monster. THAT'S where I blame the marketeers and corporations. When they HAVE to keep that monster alive or else the economy totally collapses. The other problem is human nature. We have to learn frugality. Wanting more comes naturally. Maybe that's what's needed for this country Lothar, another Great Depression, because until people are actually forced to be without, they will continue to keep wanting more.

By the way Lothar, I do agree with you that people want too much stuff and bigger and bigger houses today. When we moved to our present location, we built a small ranch-style single story house, about 1900 square feet of living space, which is actually still big for just 2 people. Trouble is, we've accumulated lots of stuff over the years. So we built a unfinished basement underneath that footprint, but it's only used for utilities, storage and hobbies. Even that area is too much of a temptation to store more damn stuff. Both of us are starting to find that we can do without a lot of the stuff that we've accumulated over the years. Going lean is starting to have a big appeal and I think we're going to sell much of our stored stuff and make life smaller and simpler. I'm getting too damned tired to deal with all of it anyway. Most of it is never used anyway. On the good side, some of that stuff is old and collectible and worth money, so I won't have any trouble selling it to others who want more stuff.

Spidey wrote:Funny you should mention the transistor radio tc, that product produced by Sony (after the Regency) was on the vanguard of cheap imported products.

Forget about “built today with modern electronics and cheap foreign labor,” because that is exactly what was going on at the time.

Actually, Sony's first little transistor radio was too big to fit in people's shirt pockets. Regency's did. It didn't sell well because of that little small detail. But they learned quickly from that mistake, made the change and made history. Cheap sells, in quantity, if the product fits what the market desires. Americans now craved lots of cheap stuff, so they hit the sweet spot in history. The Japanese were the first to sell, and be blamed for, dirt cheap and chintzy "everything", especially electronic gadgets and plastic junk. That's why they put Regency out of business, their comparable product was cheaper and they could out produce them in quantity and at a lower price with cheaper labor. Sadly, the Japanese had their little renaissance when they moved from high volume cheap to high volume quality and have now had to move back to high volume cheap to compete globally, all because of the Chinese and increasing consumer demand. Americans want too much stuff and don't care about the quality as long as the price is right.

tunnelcat wrote:The Japanese were the first to sell, and be blamed for, dirt cheap and chintzy "everything", especially electronic gadgets and plastic junk.

I don’t know, Taiwan may hold that title.

I think Australia may hold the title for plastic junk now.

So, what good is all the hard work humans do if we can't collectively make life better for ourselves? With all the advancements in the 20th Century, why should we live like we did 100 years ago? Someone is benefiting, why shouldn't it be the people doing the work? It's the 21st Century, am I expected to believe a washing machine is still a luxury item?

Yeah, I have a hard time viewing the desire for a better standard of living as something to be decried. Hell, people have been immigrating to this country for around two centuries chasing that exact same dream. The luxuries of yesterday become the necessities of today; that's just the way that society evolves. Now I'm not saying that everyone should be going after McMansions, but if you're going to be raising 3 or 4 kids, I don't think you should view a 1500-foot rancher with a single bathroom as cutting the mustard. I had to deal with that enough times when our family went on vacation, and it always wound up feeling like hell.

there's a balance, and, to my mind, it leans to the side of thrift, if one actually wishes to even ATTEMPT the so-called American Dream, which means to grow your worth over time, and be able to pass to your kids more than came your way. In relation to income, wealthy families maintain that principle far more easily,of course, but they DO tend to succeed at it. Folks of more modest means, however, used to succeed in rather spectacular fashion through sheer thrift. Two cases not THAT long past stick with me, and I'd have to really dig to find the links to the whole stories: I remember the case of a woman someplace in the mid Atlantic, who was a school teacher, and died at some ripe old age having amassed a multimillion dollar nest egg. She had lived a simple frugal life, splurging only rarely for trips and fine dining. The other case was a couple in NYC, both working humble jobs, raising a couple kids even, in small New York apartments. Their only splurge along the way beyond educating the kids, was to go to gallery shows, once in a while buying a painting from some obscure artists. They died able to leave a bit of cash for the kids, but also an art collection worth tens of millions, which was left to a museum someplace. Both cases of people who resisted excess, were quite able to live adequately, and were able to save or invest their way to significant money. Sorry to drone on, but while you all are well aware that I am open to a lot of programs to help folks who are destitute, I have far less empathy for folks simply making dubious life-choices. Where the quandry comes is when those subsets intersect.......

callmeslick wrote:Folks of more modest means, however, used to succeed in rather spectacular fashion through sheer thrift.

I think the tense of your statement is important. Hard work and thrift don't cut it these days. When it comes to depriving myself of "luxuries" I am king. I haven't bought a new car in over 20 years and I drive my current one as little as possible, opting for public transportation or my bicycle whenever possible (I drove less than 2,000 miles last year). Same goes with technology, I'm still using a computer that's over 10 years old. I live in a small place with few material possessions and buy groceries sensibly. I don't even have bad, money-sucking habits such as smoking or drinking. Yet, like others here doing the same, I'm working harder than ever, but not amassing that huge nest egg of previous generations. Sure, I've usually got enough to handle the smaller unexpected twists in life, but not the big ones.

For the record, I don't buy anything on credit. I cut up my credit cards in 1999 and never went back. But because kids aren't part of my life anymore I can live this way. I don't see how it's possible to have a family these days without using credit.

I've put off starting to establish credit for far too long, and I hate to God the fact that modern life essentially forces you to have it. Yes, rewarding someone for being in debt is a perfectly-sane concept! I'd pay for pretty much everything in cash if it was feasible for really large-ticket items.

And yeah, I wasn't implying that people should live outside their means, but at the same time I often wonder exactly what people are saving up for. I'm not really overly concerned about multi-million dollar nest eggs, or leaving hefty inheritances to my kids (if I ever have any). The way I see it, you only get one go-round on this rock, and you can't exactly take it with you, so (responsible) spending on things you like helps bring some amusement into the horrible drudgery of everyday life. Case in point: like you Vision, I was limping by on a decade-old Dell piece of ★■◆●, but after being in my current job for a solid year, I finally went ahead and threw down on a near-cutting-edge gaming behemoth. I just wanted one thing in my life that wasn't ancient crap, and I've been loving every minute of this box since I bought it. I also have an anime-DVD habit that's probably cost me several thousand dollars over the years, but I like collecting and watching them, so I consider it money well spent. At some point, you need to do the things you enjoy while you still can, instead of winding up late in life with a bunch of money but not necessarily enough vitality to take advantage of it.

I wouldn't be TOO quick to establish credit just yet TG. It is possible to live life without credit. Simply by living in a modest rental, having a low-cost car that you buy and maintain yourself, and basic mobile phone service, you can pretty much take care of the basic necessities of life. Also, if you keep your work relationships good, you can make a friend out of an ex-boss, who can help you out when you're in a jam, or can help you with a large purchase while letting you agree on a good payment system.

Doing so has let me purchase a decent vehicle, upgrade just about everything computer wise, and let me amass a sizeable collection of top-performing aircraft.

It is better to have good credit than not these days and getting it is pretty simple really. I had no credit, then I bought a car and got two cards. I pay off the full statement balance of the credit cards every month, so I never pay interest. I financed the car, but I have enough cash to pay it off entirely with plenty to spare should I want to, but the idea was to build credit. Now a bit over a year later I score in the "very dependable" range, and I get frequent credit offers that I rip up and throw in the trash same as always.

So really, getting credit is easy. Just treat it like it is coming directly out of your on hand cash, pay off every statement completely and you never pay interest. Doing it this way has actually made me like $40 through the cash back rewards programs even. It is also worth it because the credit cards often have better buyer and fraud protection features than a bank debit card.

Just don't buy ★■◆● you can't afford.

Speaking of bank fraud protection, I noticed one day that I had a charge from Starbucks for 2.50. I immediately went to the bank, informed them about it, and they commenced an investigation.

Krom wrote:Just don't buy ★■◆● you can't afford.

Great SNL skit

...

Don't get me wrong. I'm not saying "people should live in exactly the same conditions as in 1970". What I'm saying is that one of the reasons it seems like people are worse off is that we don't pay attention to the drastic improvements in certain areas. We notice things like "yeah, even poor people often have smartphones, but that doesn't make up for food being so much harder to afford" but we forget things like washing machines and air conditioning and living in bigger houses that are contributing to that affordability crunch.

I mean, TG seems to think that a 1500 sqft home with one bathroom is "hell". OK, yeah, the single bathroom with 3-4 kids is kind of obnoxious. But my parents live in 1400 sqft with 3 adult children (2 bathrooms at least) and it's not "hell". My sister lives in a 700 sqft condo with her husband and one child and it's fine. I live in 2400 sqft with my wife and son, plus one of my sisters, and teen parents and their 2-year-old, and the only thing that makes it occasionally feel inconvenient is that my sister keeps kosher and therefore has to clear out the kitchen to plug in her hot-plate and put her special wash-basins in the sink. Our pastor lives in 1600 sqft with his wife and 3 kids, and it's plenty adequate. And yet I regularly hear people talk about how that's nowhere near enough space for those numbers of people, and the same people complain about how much trouble they have affording their house, and I think there might just be a connection.

That's why I like to suggest, as a thought experiment for people who say that being poor now is worse than being poor 30+ years ago, to seriously consider downsizing to 1970 levels. Most people just brush off the idea, but some people seriously think it through, and they realize... hey, maybe I could downsize some, and be a lot better off than either someone from 1970 or than present-day paycheck-to-paycheck living.

Spidey wrote:

tunnelcat wrote:The Japanese were the first to sell, and be blamed for, dirt cheap and chintzy "everything", especially electronic gadgets and plastic junk.

I don’t know, Taiwan may hold that title.

I think Australia may hold the title for plastic junk now.

You may be right. I do remember a lot of cheap plastic trinkets that were molded with "Made in Taiwan". However, it was the Japanese who took over from us in electronics. As to the "cheap" comment about Japanese products, I remember this scene from the movie "Back to the Future 3":

wikia wrote:In 1955, while fixing the time circuits, Doc sneers and remarks, "No wonder this circuit failed; it says 'Made in Japan'." Marty replies, "What do you mean, Doc? All the best stuff is made in Japan." His remark is based on the reputation of Japanese products that, until the "Golden '60s economic miracle", the products were often cheap and poorly made. By the 1970s (and even today), Japan has become one of the world leaders in technology.

Then I saw the "Golden '60's Golden economic miracle" comment by wiki and wondered what the origin of that was. Funny what gets lost in history. Now it makes sense as to why Asia has taken over the main production of goods from the West. It was a deliberate plot. It was all postulated in 1962 by Kaname Akamatsu, a Japanese economist who came up with the Flying Geese paradigm. The West won the war, but we ultimately lost our economic manufacturing prowess years after we did our victory dance. The Japanese had the last laugh. Then one has to ask, what happens to the Asians as this process continues?

Top Gun wrote:I've put off starting to establish credit for far too long, and I hate to God the fact that modern life essentially forces you to have it. Yes, rewarding someone for being in debt is a perfectly-sane concept! I'd pay for pretty much everything in cash if it was feasible for really large-ticket items.

That was one of the first things we did when we got married. We had very little money, but we needed another car since we both worked in different places and mass transit was not available where we lived. So we went out and bought a car and got a loan to pay for it. There's no way we could have bought a car in cash back then, we were the typical cash-strapped newlyweds. But we did have enough for the down payment on a car loan. That one car loan, which we were able to pay off after we had both worked for several years, was the most important loan we ever took out. It established our good credit and we were able to easily get a loan on a house years later.

I'd also like to point out slicks comment about being thrifty allowing people to save up collections of stuff worth upwards of $10 million is complete nonsense. Lets assume you are a upper middle class American and you are exceptionally thrifty, so you are able to save roughly $50,000 every year. Now assuming you put that money to work earning some form of interest, and it is diverse so you basically only make what the market makes on average, then maybe in 100 years you will have $10 million.

On the other hand, if you don't earn any interest and just save it flat out, then it will take you 200 years...

The only way a middle class American with a college education can save up 10+ million dollars is effectively by winning the lottery, either literally, or by starting the next microsoft/google/facebook/etc. It simply doesn't add up any other way. A more realistic goal would be saving up $100,000. Unfortunately, by the time they are old enough to have saved that much, unless they win the lottery of physical health, those savings would be instantly wiped out by fairly routine medical expenses as they age (even if they have "insurance").

Krom wrote:A more realistic goal would be saving up $100,000

A more realistic goal for a thrifty upper-middle-class American would be saving $1-3 million.

If you're actually saving $50,000 per year at a return based on inflation-adjusted CAGR from 1950-present, after 40 years you'll have the PPP-equivalent of $13.3 million (via bankrate calculator)

Krom wrote:I'd also like to point out slicks comment about being thrifty allowing people to save up collections of stuff worth upwards of $10 million is complete nonsense. Lets assume you are a upper middle class American and you are exceptionally thrifty, so you are able to save roughly $50,000 every year. Now assuming you put that money to work earning some form of interest, and it is diverse so you basically only make what the market makes on average, then maybe in 100 years you will have $10 million.

On the other hand, if you don't earn any interest and just save it flat out, then it will take you 200 years...

The only way a middle class American with a college education can save up 10+ million dollars is effectively by winning the lottery, either literally, or by starting the next microsoft/google/facebook/etc. It simply doesn't add up any other way. A more realistic goal would be saving up $100,000. Unfortunately, by the time they are old enough to have saved that much, unless they win the lottery of physical health, those savings would be instantly wiped out by fairly routine medical expenses as they age (even if they have "insurance").

sorry, but utter nonsense. The examples I gave may have been exemplary(which I noted), but to save over one million is not only possible, but damn near IMPERATIVE if one wishes to retire before death. Take a 40 year career, save 7500 per year, and(this is key) INVEST along the way, wisely. This means, aggressive investment when young, moving to ever more conservative vehicles as you age, with interest and appreciation of assets like houses and the like, it should indeed be doable. In fact, I would add, that saving 100 grand isn't getting you much of anything, yet that seems to be the limited goal of FAR too many people.

This assumes what…you are earning at your peak right out of school, last time I checked most people didn’t reach peak earnings until middle age.

I’m not saying this plan can’t work…but outcomes will vary drastically, even with the best efforts.

In fact I was one of the ones that suggested this kind of thing back in one of those impossible American dream debates, but it was a multi-generational thing to get a family wealth, not a single person’s retirement goal.

Spidey wrote:This assumes what…you are earning at your peak right out of school, last time I checked most people didn’t reach peak earnings until middle age.

and therein lies the error in thinking which a lot of people fall into. You have to start saving WAY before your peak earnings start rolling in. First off, one cannot assume a 'normal' progression, and secondly, it is precisely the power of time with savings and investments that pays off in the long run.

In fact I was one of the ones that suggested this kind of thing back in one of those impossible American dream debates, but it was a multi-generational thing to get a family wealth, not a single person’s retirement goal.

99% of the time, that is really how it does work, Spidey. Most well-off families grew from several generations of combined labors and thrift.

yeah, it usually is multi-generational -- but a big piece of it is one generation saving and investing early, creating an opportunity for their children to be educated and start decent jobs fresh out of school, and then getting that generation to also save and invest.

callmeslick wrote:Take a 40 year career, save 7500 per year, and(this is key) INVEST along the way, wisely.

Unfortunately your example is unrealistic for all but a select few, which reinforces the rarity of the American Dream being accessible to everyone. What you are describing, the person working a 40 year career and saving 7,500 annually while investing wisely, isn't something that happens despite the best efforts of most people. A few of my friends were doing pretty good with saving and investing until the Great Recession -- and are now starting over without 40 years of future work and investments available to them (myself included).

vision wrote:A few of my friends were doing pretty good with saving and investing until the Great Recession -- and are now starting over

why did they need to start over?

Didn't diversify their investments and move into more conservative ones as they aged? Panic-sold at the bottom instead of riding out the recovery? Even making both of those mistakes would leave someone who had been saving and investing wisely for 40 years with ~half of what they'd have if they'd made better choices, which is still a considerable sum if the original investment goal made sense. If they were "doing good" with saving and investing over 30+ years, even losing their jobs and having to draw directly from investments would not have been crippling.

But this points back toward another issue -- people have been taught that "doing good" means having a little bit of savings. They don't have the ethos of having 6 months of expenses in liquid form, and investing 10% or more of their income every year in risk-adjusted forms (heavy stocks when you're young, more bonds when older, with a light mix of real estate and commodities, periodic rebalancing.) They don't have the expectation of keeping expenses much lower than income so that in the case of a downturn they can ride it out without losing everything.

That's one of the problems with the "buy it all on credit" mentality -- if you start to miss payments, everything falls apart. All the savings you thought you had disappear in a flash. Whereas if you buy a house you can actually afford, make adequately frugal choices, and save/invest sensibly, you can weather some pretty severe storms.

Lothar wrote:Didn't diversify their investments and move into more conservative ones as they aged?

The average person's major investment is property, namely their house. The other one is their 401k, which you never want to break into, but when you can't feed your family you have to bite the bullet. Two of my friends had decent investment portfolios and a good percentage of that was in stocks, but over the last several years they've completely abandoned the market for more stable things that don't pay dividends. Lessons learned I guess, but that still leaves a lot of people who lost their nest eggs including myself.

You can say all you want about "wise investments" in hindsight, but you also have to face the reality that the American Dream is more and more just a dream.

vision wrote:The average person's major investment is property, namely their house. The other one is their 401k

No offense, but if that's your two major investments, you're not "investing wisely" -- which is what slick's comment was about, and what Krom's comment was about, and what my numbers were about. And if you're not rebalancing regularly, and shifting toward more conservative investments as you age, you're not "investing wisely". This whole thread is about peoples' financial expectations not meeting reality. And one of the ways peoples' expectations don't meet reality is that they *think* they're investing wisely and building a nest egg, but they *actually* haven't come anywhere close.

We live in a society where people think they're making good financial decisions when they buy a $400k house on a $50k income (because "the bank said I can afford it") and they put 4% into a 401k and have a couple grand in savings and pay off their credit cards every month. And then they say "the American dream is just a dream" -- and we're not talking about sub-poverty-line salaries but average and above-average Americans. No, the dream isn't out of reach -- you just have to make better decisions than most people make. Instead of buying a house for 8x your salary, buy one for 3x your salary. Instead of 4% in your 401k, put in 10%. Every time you get a raise, instead of increasing your lifestyle by the full amount, put half of the amount into automatic savings/investment. As you get older, put (your age - 20)% into bonds instead of stocks. If your investments are growing unevenly, such that you're not at the percentage you want, transition some money from the overperforming investments to the underperforming ones (we call this "rebalancing", and it's a way of locking in gains and mitigating risk.)

“Starting over again” is one of the major reasons people no longer achieve family wealth in this country.

The entire system is now designed to start a family at near zero every generation, from social programs to tax law.

This is how it works…you are born, in twenty years or so you leave the nest, essentially losing the benefit of your parents wealth, and they lose the benefits of yours, then you have children, and the cycle starts again…rinse…repeat…etc.

So essentially each generation only has one lifetime to generate, accumulate and keep wealth. And so the idea of the American dream, does indeed become a pipe dream, and the systems in play in this country actually encourage this.

On perfect example…section 8, where you have the case that you would expect people to take full advantage of staying home and building wealth, instead are encouraged to leave home and live by themselves, losing all of the benefits of the extended family, such as convenient child care and many other benefits. (yea, now some stranger is teaching your kids their values in day care)

When you lose the extended family, you also lose many of the benefits of acuminated wealth, values, education, efficiency…etc. But people in this country are programmed to believe the proper way is to break away and start their own family regardless of the condition of the family they are leaving. It’s the American way, granny has social security!

It seems to me, and I don’t really want to get into conspiracy theories here, but if I were to, I would say that the powers that be want it this way.

Ok…there is more I can say, but this is getting long, so I won’t bore you any more.

I think you're on to something.

One of the worst things about our form of welfare/etc. being "need-based" is that it encourages people to put themselves into needy situations. Teen mom? Live at home and get nothing, or move out and get section 8, WIC, EBT, TANF, etc. The inherent structure of our system encourages inefficiency -- by designing it around supporting the worst-off, only in their worst-off condition, people who are "on the bubble" have a financial motivation to take the worse path.

I don't know how much I want to blame it on intentional action. I think some of it is accidental -- people trying to prevent waste by making sure only the neediest qualify, accidentally incentivizing neediness. But some of it is intentional -- I've heard people who dislike religion advocate for policies that separate teens from their parents in order to prevent them from absorbing their parents' religious beliefs. I don't mean, I read that in to innocent comments. I mean they've explicitly talked about wanting to increase support for teen moms living on their own specifically to get them away from religious parents because "all religion is abusive". I suspect there are others with similarly nefarious reasons for structuring the government the way it is -- making people more dependent on employers (why do we get health insurance through our jobs again?), making people less dependent on family, making people more likely to turn to government for help.

Lothar wrote:

vision wrote:The average person's major investment is property, namely their house. The other one is their 401k

No offense, but if that's your two major investments, you're not "investing wisely" -- which is what slick's comment was about, and what Krom's comment was about, and what my numbers were about. And if you're not rebalancing regularly, and shifting toward more conservative investments as you age, you're not "investing wisely". This whole thread is about peoples' financial expectations not meeting reality. And one of the ways peoples' expectations don't meet reality is that they *think* they're investing wisely and building a nest egg, but they *actually* haven't come anywhere close.

Indulge me as to what other "investments" you're talking about, other than personal property (house, cars, possessions) and retirement and bank accounts? Because gold and cash stuffed under the mattress gives no return, growth or safety and if you don't own a house, have any possessions of any worth or have any savings, you're in a heap of trouble once you reach retirement age or get sick and can't work. Then what? The streets?

tunnelcat wrote:

Lothar wrote:

vision wrote:The average person's major investment is property, namely their house. The other one is their 401k

No offense, but if that's your two major investments, you're not "investing wisely" -- which is what slick's comment was about, and what Krom's comment was about, and what my numbers were about. And if you're not rebalancing regularly, and shifting toward more conservative investments as you age, you're not "investing wisely". This whole thread is about peoples' financial expectations not meeting reality. And one of the ways peoples' expectations don't meet reality is that they *think* they're investing wisely and building a nest egg, but they *actually* haven't come anywhere close.

Indulge me as to what other "investments" you're talking about, other than personal property (house, cars, possessions) and retirement and bank accounts?

You just named one of them right there. Additionally, other investment accounts not in a 401k, such as CD's, non-retirement stock/bond accounts, etc.

If all you have is your house and an undersized 401k and a tiny bit of savings, you're not "investing wisely". Over time you should be building up short-term savings, long-term investments, and retirement investments. Particularly, as has been discussed, for middle-class and upper-middle-class individuals, you shouldn't be like "omg I lost my job and the market had a downturn and my 401k has evaporated in a year". That's nowhere close to the level of investment you should be at, nor the level of risk your investments should have, after 30-40 years in the workforce.

OK, you cleared that up. What about those that don't have enough left over to put into other investments? Sometimes a 401K is all they have (if that) left after daily living expenses are covered and many of those people don't even own a house as their other investment, they're renters. Millennials are mostly renting, not owning, right now, so they've already lost out on one of the major historical investment options. Late entry Millennials are also the ones that are holding the most debt from their college education, so that has to be paid off first, well before any saving can commence.

You're assuming that anyone who doesn't invest their surplus income in other instruments is frivolously spending their money on other "stuff" instead of saving it like they should be doing. That also implies that you think most people MAKE enough money to put that surplus into investments in the first place. Kind of a narrow view of how most people really live day to day right now isn't it Lothar?

tunnelcat wrote:What about those that don't have enough left over to put into other investments? ... That also implies that you think most people MAKE enough money to put that surplus into investments

The context of that particular comment was middle-class, particularly upper middle-class. If you're making $50,000+ per year and especially $100,000+ per year, barring extreme circumstances, you have enough to put into investments. If you're making that amount and are living paycheck-to-paycheck, then the rest of this thread is pretty much on target -- you're very likely living an inflated lifestyle. I'm not talking about people who are legitimately deep in poverty and can't save because they can barely afford food; I'm talking about people in the middle class who *think* they can't save because of the decisions they've made.

Most people don't live like I recommend. That's the point! That's the context of this discussion! The economic reality is, and always has been, that if you're in the middle class, you should buy a sensible house in a sensible neighborhood for a sensible 3x your yearly earnings, and put away a sensible 10% or more of your income in a mix of short-term, long-term, and retirement-term investments with a risk allocation based on your personal risk profile. You can live a pretty comfortable lifestyle on a middle-class income and still do those things. But most people, even in the middle class, don't do that. Instead they buy a bigger house with more amenities than their income justifies, a new car every 4-6 years, and luxury items like high-end smartphones and TVs and computers and stereo equipment, and they save very very little. (Or they might only do some of those things, but enough of them that they don't end up saving a lot of money.)

It's like you said earlier, we've become a very consumption-driven society. People making low six figures don't think they can save money! That's insane! But it's because they have lifestyle expectations that are based on spending almost everything, rather than spending some and saving enough.

Lothar wrote:No offense, but if that's your two major investments, you're not "investing wisely"

No offense taken, and everything else you posted reinforces my point that people generally don't make enough to invest, don't have the time to investigate and maintain investments, and even if they understand "re-balancing as they age," usually can't in the face of everyday life. If you can do this, feel good because you are special, and the failure of others to equally has nothing to do with laziness, greed, stupidity, or any other character flaw. Being a "wise investor" is a different skill than "working hard and being thrifty," which is the point Slick wants to make through his perfect-world scenario.

I was doing pretty good before the recession. I was self-employed, but the work ran out and I didn't get the income flowing again for over a year. Once you go through that recommended 6-month buffer, things take a dive real fast when everything else is also collapsing around you. It's been years since the economy started to improve, yet only a small handful my my friends have completely recovered to pre-recession levels. This is how the world works, and Slick's fantasy about the American Dream doesn't match reality -- otherwise we'd all be millionaires doing much more interesting things instead of posting on a video game forum.

tunnelcat wrote:OK, you cleared that up. What about those that don't have enough left over to put into other investments? Sometimes a 401K is all they have (if that) left after daily living expenses are covered and many of those people don't even own a house as their other investment, they're renters. Millennials are mostly renting, not owning, right now, so they've already lost out on one of the major historical investment options. Late entry Millennials are also the ones that are holding the most debt from their college education, so that has to be paid off first, well before any saving can commence.

You're assuming that anyone who doesn't invest their surplus income in other instruments is frivolously spending their money on other "stuff" instead of saving it like they should be doing. That also implies that you think most people MAKE enough money to put that surplus into investments in the first place. Kind of a narrow view of how most people really live day to day right now isn't it Lothar?

most of the time those people COULD have afforded other things, but they make two key mistakes. First off, they don't do the work to understand investing in 401s or other investments, hence don't understand the whole concept of building a portfolio. Second, which has been touched on, the spend FAR too much on housing which is WAY past their means.


it's been enjoyable reading the back and forth here. Really good, high-level stuff from all of you!

vision wrote:everything else you posted reinforces my point that people generally don't make enough to invest

Really? Because I was making enough to invest a little bit when my wife and I were in grad school, as teaching assistants. When our income was in the $60k range, we were saving over half of it, even with a small child at home. Because we didn't let our lifestyle inflate very much. When I say people making $50,000+ could save and invest, and that a reasonable target value is in the $1-3 million range, it's based on the actual lifestyle I live.

don't have the time to investigate and maintain investments, and even if they understand "re-balancing as they age," usually can't in the face of everyday life

Try Vanguard's Target Retirement funds, which auto-rebalance for you. Or, once per year, log in to your account and take 15 minutes to transfer $X from account A to account B because account A has outgrown your target allocation while account B has fallen behind. And stop making excuses for people. They're not stupid. They're just uneducated -- but it's an education that you can get just from talking to somebody who knows their stuff for about an hour.

People can do this, and be in good shape financially even through a collapse. But not if we refuse to take a hard look at whether it's actually a good financial decision to pay 8x your income for a house, buy a new car every 4-6 years, and have the latest high-end phone for you and your wife and both of your teenagers.

Once you go through that recommended 6-month buffer, things take a dive real fast

That depends on what you've done with the rest of your investments, and how easily you can adjust to a low-burn-rate lifestyle. We made it through just fine, despite my wife being unable to work full-time between when our son was born and when he was 4 and a half (or watch him; I had to do that until he was 3 and therefore also didn't work during those years). I worked a low-paying 9-to-5 at a school after our son started preschool. She did some part-time contracting when her health allowed it. We cut our expenses. We occasionally even sold off some of our other non-retirement investments. There were challenges, but if you were "doing pretty good" before the recession, those sorts of challenges can be weathered. If "doing pretty good" actually means living an affordable lifestyle and saving and investing a reasonable amount. Which is what I'm advocating for.

Again, stop making excuses for middle-class and especially upper-middle-class people who are making financial decisions that consume virtually all of their income. You don't have to be a genius to follow the basic ideas I've laid out in this thread: buy a house you can afford (3x your income, not 8x your income), be a little more thrifty about what car you drive and what smart phone you have, develop a budget that lets you save 10% or more between your 401k, short-term savings, and longer-term investments. And as you get older, take a one-hour seminar from a legitimate financial planner (your bank or credit union probably has a free course) to learn about asset allocation and rebalancing. If you do those things, at the end of a 40-year middle-class career you should have the equivalent of $1-3 million invested, even after accounting for the occasional severe recession.

Lothar wrote:....It's like you said earlier, we've become a very consumption-driven society. People making low six figures don't think they can save money! That's insane! But it's because they have lifestyle expectations that are based on spending almost everything, rather than spending some and saving enough.

Oh, I agree 100% with that. We are awash in junk and stuff we don't need to just live.

But what happens to everyone's investments if people quit buying things? Wall Street and our economy is growth driven. Our savings are investment driven, especially today. What happens to our hard earned savings if no one buys anything and the economy stagnates, or tanks? Wasn't that Reagan's dream, get rid of corporate pensions and that evil social security and have everyone put their nest egg in the stock market? No growth in consumerism, no growth in the stock market, no growth in people's nest eggs. It's a pyramid scheme we're now dependent on, especially since houses are so expensive and interest rates are so low, it almost pays better to put your money under a mattress, especially after hearing that banks may not pay interest at all and instead charge customers for the privilege of storing their money.

http://www.infowars.com/economist-u-s-b ... -deposits/

Lothar: he wasn't talking about you specifically. he was talking about the american populace as a whole. I assume he has enough common sense to know there are exceptions.

tunnelcat wrote:what happens to everyone's investments if people quit buying things?

I'm not advocating a system in which people quit buying things, only a system in which they buy things they can afford.

Ferno wrote:Lothar: he wasn't talking about you specifically. he was talking about the american populace as a whole

Yes -- and he's still wrong. He's in fact describing exactly the sort of misconception that underlies the problem in the first place -- the misconception that you can't save a substantial amount, that people in the middle class can't plan for downturns, that you have to spend the majority of what you make to maintain a particular lifestyle.

You can make $50k per year with a family, and still save and invest fairly substantially, and be able to weather a multi-year downturn. But you have to make economic decisions that allow you to do those things. And most people would rather have a bigger house and a newer car.

Lothar, around here, planning to buy a house that's around 3 times the yearly salary figures you're mentioning gets you...well, pretty much nothing. And this isn't even the most super-expensive part of the country or anything. Even our own family house, which is hardly anything extravagant, would now most likely fall into that 7-8x range thanks to how much home prices have inflated over the years.

Top Gun wrote:around here, planning to buy a house that's around 3 times the yearly salary figures you're mentioning gets you...well, pretty much nothing.

That's not a counterpoint to what I'm saying, though. It's simply the reality -- some places aren't affordable. You don't have to choose to live in those places. Or if you do, you have to at least recognize the tradeoff you're making. If you're paying 8x income for a house, that's an expensive decision -- there are a lot of decent cities where you can get a $50k job and a $150k house (whole swaths of Denver, KC, Atlanta, Cincinnati, Indianapolis, OKC, and so on -- and even some of the suburbs of more expensive cities like Seattle have areas where you can get a home for the prices I'm suggesting.) Particularly in the context of middle-class and upper-middle-class Americans: yes, you *can* choose to live someplace expensive and pay 8x your income for a home, but don't act like the American Dream is out of reach for ordinary people just because you've decided to live in a place where $400k, 2500 sqft 5 bedroom homes are the norm.

If you didn't pay 8x for a house, but the value has inflated, lucky you! If you decide to deflate your lifestyle by downsizing your house, you can walk away with a hefty profit.

Top Gun wrote:Lothar, around here, planning to buy a house that's around 3 times the yearly salary figures you're mentioning gets you...well, pretty much nothing. And this isn't even the most super-expensive part of the country or anything. Even our own family house, which is hardly anything extravagant, would now most likely fall into that 7-8x range thanks to how much home prices have inflated over the years.

if so, then you cannot afford to buy in that market. Period.

Lothar wrote:Yes -- and he's still wrong.

Sure, because financial success is just this easy:

Lothar wrote:And as you get older, take a one-hour seminar from a legitimate financial planner...

LOL.

I wonder why high schools don't replace one pep rally per year and have a financial planner come in and explain to all the kids how to be "wise investors?" It would solve all our economic problems! \0/

callmeslick wrote:if so, then you cannot afford to buy in that market. Period.

What is this fantasy world you and Lothar live in where the average person (middle-class or not) can just pack up and move away from their social network and family obligations to possibly find comparable work in a cheaper city?

Again, I see you are both talking about two separate points, but neither of you are very convincing.

Comparing middle class to your 60k/year income is very vague, Lothar.

And as for simply moving to another location that has a lower living cost is harder if you have less income.