Don't Bank on Your 401k

I like the term Michael Savage uses to describe an ever increasing percentage of Americans that don't think and just do;

"Sheeple."

People who just do what they're told and never think about it.

And while normally this would apply to college students that just regurgitate what their professors told them, when it comes to the financial markets a scarier instance of "sheeple-ism" is retirement plans.

Specifically your 401k's, 403b's, IRA's, etc. And the reason it's sheeple-ish is that nobody thinks about the ramifications of suddenly ordaining stocks, bond and other liquid securities as the defacto retirement mechanism. We just do what we're told and invest.

I made a more analytical post about this taking a look at how much cash flows into mutual funds drove the price of stocks versus corporate profits and found that it is indeed cash flows driving the price and not necessarily profits. This is particularly scary when you look at the American economy and see us about to enter a recession and looking at jacking up taxes by 10-15% GDP to pay for social security and medicare. Where are the profits going to come from in that environment to give stocks their value, let alone give them the rationale to keep increasing in price by 12% a year?

Thus I was not surprised when I saw this chart;


Without a proportionate increase in GDP or profits we are all of the sudden applying 3 times more value to stocks, bonds and other financial assets. Now some of this can be explained away by increases in liquidity where more people are allowed to invest due to online trading, lower trading costs and so forth. But it mimics what my previous research showed me. That we are valuing stocks and other securities more highly, but for no reason, other than the market has been flooded with retirement dollars.

This is a scary prospect to the sheeple who just invested in their 401k religiously because that's what they were told to do. And while I am no advocating NEVER contributing to a 401k or retirement plan, nor saying this couldn't be resolved by investing overseas and diversifying your portfolio, don't be surprised if your 401k is worth considerably less than you thought it might be.