Streetwise for Sunday, July 23, 2017

It is interesting or sad, depending on your perspective, to watch how investors react to a relatively minor market decline. For all the bravado exhibited during rising markets, let news events send the major equity indexes sliding downward and suddenly everyone wants to run for the exits. It is interesting or sad, depending on your perspective, to watch how investors react to a relatively minor market decline. For all the bravado exhibited during rising markets, let news events send the major equity indexes sliding downward and suddenly everyone wants to run for the exits.

It was not long ago that many of those investors spent countless hours collecting endless quantities of data with which to analyze fundamental and/or technical statistics until they were dizzy. What they forget, or simply left out was that in the finality of it all, subjective human judgment must carry the day. The possibility that many companies were likely still chalking up organic growth was cast aside in panic.

Although modern investment analysis would be impossible without computers to carry out innumerable mathematical tasks on a repetitive basis, there is still no substitute for human judgment. Unfortunately, the human intellect is not immune to expectations, 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 expectations are bathed in the harsh light of reality do we see the true picture of where we are and how we got there.

Those who are dissatisfied or disappointed often comment that Wall Street is Las Vegas dressed in pin stripped suits. I adamantly disagree. While speculation could be viewed as a sophisticated form of gambling, investing is not.

At the same time, investors are often tempted to fold their investment tent due to the Streetís seemingly unending lack of forthright behavior. The fallacy here is that the Street’s antics are often not the cause but rather the result of corporate performance.

Yes, the specter of the unknown can be a driving force that strips away logic and lowers the expectations of those who cannot see through the emotional hysteria that so often envelops Wall Street. The ensuing desperation is understandable.

Therefore, it is no surprise that investors are often caught up in a variety of investment deceptions and aberrations, such as falling victim to a Ponzi scheme, investing in techniques beyond their skill level, or simply following poor financial advice.

If you are wondering why investors seem so touchy, consider that among adults a third have little or no savings. A quarter of all adults have no savings for retirement. One in five believes they will never be able to retire.

Greeting jobs at Wal-Mart should not become a sought-after form of employment. However, if you really want to put off retirement until you can “call in dead,” then forego building a portfolio. If, or when, you retire, one of the great myths is that upon retirement you no longer pay taxes.

Sorry, but the Uncle’s tax collection department never sleeps. And if you subscribe to the Pollyanna expectation that simply holding a passive or indexed portfolio will save your bacon then there is trouble in the Land of Oz.

As powerful as compounding is, it can be destroyed by the failure to accept short-term price aberrations. Volatility is never a reason to abandon your portfolio and exit stage left. Rely instead on the precept of investment quality to guide you through the precariousness of Wall Street.

Intelligent investing can counteract the symptoms of never being able to retire. Yet, there will always be those optimists who assume that one day their below average income will exceed their above average spending. Great, we call it 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?

Oh, 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 accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.

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