Stocks Vs. Cash
"The net, real returns on stocks are likely to beat cash by around 100 times… over the typical, three-decade timespan when an investor has the most funds to deploy. Over even longer time frames the difference is even greater." (Rob Marstrand)
"Without Social Security included, even those who are excellent savers…may experience financial vulnerability in retirement. Include Social Security or an inflation-adjusted income annuity that lasts a lifetime, and a retiree may depend less on variable assets like stocks to create a dependable, predictable income especially during market cycles characterized by poor sequence of returns risk." (Lance Roberts)
Hard To Start
"Abundant research shows that people often struggle to visualize their older selves, making it difficult for them to get started on the investment path. The evidence is borne out by BlackRock's latest Global Investor Pulse, our annual survey on investor behavior around retirement. We found that just 56% of Americans have started to save for retirement. And they don't feel great about it: 53% believe they are lagging behind financially, and 45% think it's unlikely they'll achieve their ideal retirements." (Martin Small)
Thought For The Day
Back in 2012, then 32-year-old filmmaker Jeremiah McDonald interviewed his 12-year-old self, a discussion facilitated by the precocious 12-year-old's decision to record himself asking questions of his future self. At one point in this charming dialogue between the younger and older McDonald, the senior self cringes at his younger self, saying, "No wonder I'm single." When his younger self asks why his future self is bothered, the older one snaps: "Because I'm the result of every decision you make!"
I thought of this once viral video when reading Martin Small's "Future Present: 3 Ways To Make Retirement Planning Real Now." The BlackRock exec opines that the difficulty people have in visualizing their older selves is a barrier to planning for their futures, citing both "abundant research" as well as his firm's own annual surveys of investor preparedness.
Indeed, the Journal of Marketing Research published some very on-point research to that effect back in 2011, in an article called "Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self." That research enabled college-age volunteers to look at digitally altered renderings of their future selves to make them look 50 years older, while a control group looked at non-aged versions of themselves. The students who saw their septuagenarian selves were willing to put twice as much money into long-term savings as the control group. As the abstract states:
In four studies, participants interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In all cases, those who interacted with their virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones."
Apparently, the source of the difficulty, according to this study, is "people may fail to identify with their future selves because of a lack of belief or imagination." I suspect, without having researched the matter, that this failure of imagination varies a great deal within the population. Parents must instill this belief, and as a backstop, our education system must help children imaginatively penetrate the future, especially in the field of personal finance.
If there are any teachers out there, a Jeremiah McDonald-type creative assignment could have students interview their digitally enhanced future selves, or maybe better yet, have their future selves interview their current selves. A 70-year-old might tell her school-age self that she didn't need to spend as much as she did on clothes, entertainment, and vacations; she might say there were health and longevity risks that seemed improbable at the time that she wished she had insured against. Something like that might be the secret path to the financial literacy that still eludes many Americans.
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