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Dogma is for the dogs

by Don Kuehn

Life used to be so predictable. Graduate from high school, decide about college, get married in your 20s, have a couple of kids, buy a home in your 30s, work for one company your entire life and retire with a pension in your 60s. Just like Ozzie and Harriet or Ward and June Cleaver.

Well, a funny thing happened on the way to that gold watch and the condo in Florida. The stuff that changes even the best financial planning seems to kick you when you’re down: economic upheaval, a job loss, divorce, going back to college to prepare for a new career, living longer and (re)marrying later all change the simple cookie-cutter ideas of money management that were valid just a decade or so ago.

It’s not how old you are, or even how long you expect to keep working that figure prominently in today’s financial planning; it’s about what stage of life you’re in.

  • One of the biggest game changers in managing one’s finances is divorce. A study by Barna Research Group reveals that 25 percent of all U.S. adults have been divorced at least once. According to the Enrichment Journal, the divorce rates in America are 41 percent of all first marriages, 60 percent of all second marriages and (are you ready for this?) 73 percent the third time around. That makes it really tough to save for retirement and other goals when a division of assets, alimony, child support and stepfamilies are making demands on your income.
  • A growing number of Americans are now part of the “sandwich generation” of adults who are spread between raising a family of their own and caring for aging parents. The financial drain can be enormous. You know you should be saving for college tuitions for your kids and retirement security for yourself, but how do you say “no” to parents whose health or finances prevent them from living independently?
  • The corollary to that is when older parents answer a knock on the door and find their grown child, laid off from what seemed like a good job and in need of a place to live. So long Florida condo, hello “boomerang” family. In 2008, a record 16.1 percent of the U.S. population lived in extended family settings (up from 12 percent in 1980).
  • A layoff or termination or even a pregnancy can mean more than a temporary interruption in financial plans, it can mean delaying retirement by several years or even a decade to make up for lost investing time. When it comes to growing your portfolio, it’s time, even more than the stocks or mutual funds you choose, that most affects your return on investment.
  • One offshoot of the recession has been an uptick in the number of people starting their own businesses. The entrepreneurial spirit in America has always been strong, but the realities of a tight job market and high unemployment have made this a compelling option for a lot of people.

In the past five years, the number of people who have started businesses “out of necessity” has more than doubled to almost 29 percent, according to a study by Babson College.

The problem is, even if your entrepreneurial enterprise is the “next big thing,” there is going to be a period of adjustment, plowing all available cash back into the business and not drawing a salary (much less investing in a retirement or college fund) while waiting for the world to notice you.

So, how do you weather these life stages and still protect your future? The easy answers that advisers used to dole out don’t necessarily pertain today. Obviously you have to meet immediate needs first and foremost. Money you thought you could apply to a goal, like retirement, might have to be diverted to more pressing needs.

Past notions of when and where to retire are pretty much out the window as well. The recession and its aftermath have had a big impact on the baby boomers. As they reach or approach traditional retirement age, they may find that life has moved the goalposts; 401(k) or 403(b) accounts haven’t kept pace and many investment portfolios are just now catching up to where they were a couple of years ago.

Many mortgages are “under water,” and foreclosures have set records in the past couple of years. Two things have become clear: Home ownership isn’t for everyone, and a house is not a piggy bank. People who had plans to sell a home that had appreciated in value so they could buy a smaller place in retirement have found their homes aren’t worth what they thought they would be.

The recession has crushed the confidence of many fledgling investors whose involvement in the markets was born in the boom times of the 1990s and died in the bursting bubbles of the early 2000s and the recession a few years later. With the up cycles and the down cycles they’ve seen, it’s tough to convince them that investing in the stock market is the only way to stay in the game of preparing for retirement. There is plenty of research to prove that being out of the markets for even a few days of a recovery can have a devastating impact on your returns over time.

Oh, and that retirement, it’s going to last a lot longer than you might think. Many Americans are living well into their 80s and 90s, and beyond. That’s likely to continue to increase the number of sandwich and boomerang families; it will put added stress on adult care facilities and services; and it will ratchet up the political pressure to maintain and even improve the social safety net at the federal and state levels.

Dogma dictates that when you are young you invest aggressively to take advantage of the fact that you’ll have plenty of time to weather the cycles of the markets. Then, as you get older or approach your goals, you shift to more conservative investments because you’ll have less time to recoup losses if there’s a market plunge.

But dogma is for the dogs. Right now, every investor should be conservative. There is way too much uncertainty in politics, in international affairs and even in factors like the weather (affecting crop yields and commodity prices and, thus, inflation) to be a risk taker.

Conservative usually means shifting to a greater proportion of cash and bonds, both government and corporate. But even some choices in stock mutual funds, such as balanced funds and those that invest in companies that have a strong history of paying dividends to shareholders, can provide more conservative options without abandoning equities altogether.

If a college savings fund for your child is your goal, you’d go conservative by the time he or she reaches high school to be sure a market correction doesn’t wipe out a semester or more of savings before your child even starts college. Or, if it’s your retirement fund, you’d start shifting to a more conservative mix of investments a few years before the big day to protect your nest egg from a sudden downturn on Wall Street.

Maybe you’ve heard the old maxim “a rising tide lifts all boats.” Well, a perfect storm of global and economic news can cause a tidal wave of selling on Wall Street that swamps all boats, too.

It’s your money, so be aware of the life changes that can affect your investing future. Don’t rely on outdated dogmatic advice that made you comfortable a decade or more ago. The times, as Bob Dylan said, are a changin’.

Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to