The most probable outcome of the current economic crisis will be the devaluation of the pools of money that the middle classes have set aside for their retirement. The first blow has already been felt in the sharp decline in stock valuations and interest paid on conventional savings. The second will come in about two years as inflation begins to further erode the value of savings of any type, as inflation will certainly exceed interest rates. As this will be the solution to what government sees as a greater problem than your retirement, complaints will go unanswered. Government's great challenge will be to keep the spread between inflation and interest rates acceptable to foreign holders of US Treasuries, and consumer concerns just won't be on the radar, except at election times. Government will have to use inflation to make its own debt manageable, as other countries will be less able to finance our spending. I consider this to be more or less inevitable.
The effect of this will be to rebalance the working life of the non-rich to resemble the profile of earlier times, that is, retirement will last only about 10% of the average life span, or the final 8 years of an 80-year span. As work has become much less onerous than in times past, it could be worse. However, we will look at the 30-year retirements of the Greatest Generation with more than a bit of envy. There will be an awful lot of us doing wind-down work to supplement our Social Security--and would you like fries with your blog today?
When the dust settles and people once again wish to put money away for this much-reduced retirement, it will become fairly clear that the logical instruments to use already exist--tracker funds and inflation-indexed government bonds. The key feature of both is the elimination of the Wall Street caudillo, the men (and occasional women, but it's mostly men) who are sublimely convinced that they can beat the market and should be guaranteed great riches as a result. People may hold out the occasional exception, such as Warren Buffet's Berkshire Hathaway, but in fact it is a tracker fund to all intents and purposes, with sectors chosen by BH management for intensive cultivation by the insertion of interim management in individual companies. People will certainly note that inflation linked bonds don't exist in anything like the quantity that would serve the needs of the middle class--but that may well change as government financial needs become more pressing. It is certainly something that the middle class could demand of its political leadership to compensate for their loss of wealth over the past 18 and upcoming 10 months.
The goal has to be to take financial decisions about other people's money out of the hands of the individuals who have destroyed so much wealth. The appropriate management structure is the trust, as evidenced by entities such as CalPers and other pension trusts. (And yes, they are taking a savage hit during all this as well.)
We're in a bit of a pickle, actually. Those who invested in stocks have lost all of their gains and some of their original capital. Those who felt safer in bricks and mortar have seen the value of their homes return to historical trends--but there is every chance prices will continue to fall. Those who stayed liquid feel pretty good about themselves, but should be aware that inflation is coming soon. The current fears of deflation are perfectly valid--but they are like the tide rushing out in advance of a tsunami. There isn't a refuge in sight.
I am not an investment advisor, as a look at my personal portfolio will assure you. But:
The sensible strategy is to be brilliant now--to take personal responsibility for your wealth and to be willing to make the major transitions needed. We all should be as liquid as possible now. We should be willing to move at the first sign of inflation into instruments that will stay ahead of inflation. This will be extraordinarily difficult. But the best advice I can give you is not to trust someone who says they can do it for you. That's what got us here in the first place.
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