Saving for Retirement Using the Stock Market—Are You Crazy?
There are a lot of people out there that don’t have pensions. I know a lot of business owners, real estate agents, and contractors who basically will be relying on their own savings for their retirement; and make no mistake, they want to keep the same lifestyle they have now, or better.
Many friends have become disheartened with the stock market, and Wall Street especially, but they do realize that equities are probably going to be a component of their holdings in retirement.
A good friend, Brian, owns several small homes (all with mortgages), and he rents them to students in a university town. His goal is to manage these properties until retirement from his position as a seed and fertilizer salesman for a large agricultural firm. He’s not saving now, but selling these homes will be the basis of a retirement fund from which he plans to invest in income-generating securities. Brian works hard and has a plan. He doesn’t want the government or his employer to take care of him in retirement. He doesn’t invest, and he is not saving cash, because any excess money he receives from his employment income goes right to paying down his mortgage debt on his rental properties. Brian says that he will probably have to work with a stockbroker at some point, but doesn’t particularly want to.
A lot of self-employed people are going to have to do a similar kind of thing if they want a retirement lifestyle similar to the way they live now. Over the last decade or so, the stock market has proven to be so volatile and extreme in its price movement that many individual investors are just turned off by the whole idea of investing in stocks. Equities have always been risky assets for investors, but we all got caught up in the idea of saving by investing in mutual funds or stocks for the long-term.
Even though the subprime financial crisis knocked the wind out of the U.S. real estate market, Brian argues that he’ll still do better with his rental properties than with any other asset (retirement is about 12 to 15 years away, he says). Saving for him is servicing his mortgage debt. Brian likes to play a lot of golf, but he doesn’t drive a fancy car. It’s always in the back of his mind—his saving for retirement, which for him, is paying down debt.
From my perspective, Brian’s got a pretty darn good plan for himself. He’s got quite a bit of debt, and he has the risk that the real estate market won’t go up, but he’s not worried at all. His saving for retirement is about real estate, not the stock market. Brian says he’ll probably have to own a stock at some point in the future; but then again, maybe he’ll just keep a rental house or two that no longer has a mortgage.