Chapter 4 Summary:
Self-serving financial firms promote savings growth by recommending more money be managed in traditional ways such as stocks, bonds, and mutual funds. However, building savings using these traditional methods may not allow you to convert your assets to spendable retirement cash.
Low bond interest rates have been “uninteresting.” True inflation-adjusted stock market returns over the first 17 years of this century have been pathetic. For this reason, it is very difficult to make a reasonable return if only looking at traditional types of investments.
The stock market has dropped over 50% twice in the first 17 years of this century. It is prudent to think that this volatility is likely to continue. How can you convert a nest egg into spendable cash when half of its value disappears?
It is reasonable to assume that high inflation rates will soon be returning. The only way to get ahead is to have your nest egg earning more than the inflation rate. Inflation is going to make the value of your nest egg smaller. Fighting the effects of inflation is imperative.
It is nearly certain that tax rates 20 years from now will be much higher than today. The implication is that tax-deferred accounts (IRAs, 401[k]s, and pensions) could be profoundly affected by these higher rates. Remember, the money in these accounts does not actually belong to the account owner. It also belongs to several taxing authorities, at future tax rates, which investors have no control over.