Curious if anyone else saw this video with Michael Belkin predicting a recession. Also, if you agree with his prediction, what would you do to protect your retirement fund?

http://live.wsj.com/video/michael-belki ... 92D40.html

Hmm, about this time in 2003 Belkin predicted a collapse in the market through the end of that year and accelerating down throughout 2004. The market went up about 5% in Q4 of 2003 and another 10% roughly in 2004. Personally I've turned very cautious because of what I see (little or no growth in the world, ineffective monetary policy, and incompetent politicians and fiscal policy), but I would not worry too much about what any "expert" says.

DH, on this last point you made, would you recommend younger folks (like myself, lets just say 30 or less to have an idea of age range) to take the same cautious look on things?

I mean, I have seen the same things you mention and I worry to a degree, but should someone that has easily 20+ years before retirement is even in sight should this caution just be waived off to the decades of years ahead of us and stick to the more traditional "put as much as you can in the stock market."

And just to be clear, I don't mean be ignorant and run around aimlessly since we are "young", just if we should continue the usual high risk profile.

That's a good question. I certainly put everything I could into the stock market when I was your age and that worked out well. All the research and evidence supports the idea that the risk of stocks is greatly reduced over a long time span. That will always be true.

At the same time, 2008 was very painful and unexpected. Even hardcore efficient market guys like Bernstein have changed their tune and now recommend people only have at risk in the market what they can afford to lose. That suggests that even young people should have significant savings and investments that are not in stocks.

What worries me is that much of the great performance of stocks over the last 60 years or so is explained by factors that can't continue - major deficit spending/government debt, a technology boom, and a baby boom.

I'm not expecting the world to come to an end, and I do think investors will continue to be awarded for taking risk. But I don't think that reward will be as attractive as it has been and I think the risk-free return will be very low for a long time. That means younger people should read what they hear about US markets over the last 60 years and question whether the trend will continue and, if it doesn't, what they should invest in to ensure they have enough money for their future.

I agree with many of your points, but your last line "... what they should invest in to ensure they have enough money for their future." is what worries me. Now as you may imagine, as being a person that has posted on these forums (on and off) for over a year now, and have probably read them 2-3+ years longer then that, is that I do look at my projected retirement amounts at different percentages.

But we both know that just 1-2 percent difference over 30 years can make a world's difference. And planning for lets say just a 4% return over those 30 years could make your nest egg look much smaller. People say to use 8% for your projections, and some even argue that's too low if you are rolling the dice in the stock market, but 8% by some may seem like an impossible feat over the long run.

I guess what I'm trying to get at, with the very low return on non-risk investments/vehicals, and almost just as low of return on "low risk" investments (which make them almost not worth even considering), the only option it seems to actually get a boost from investment to bring retirement closer, or to have a nicer retirement is to take on the risk of the stock market.

Now if I was in my 40-50's and got the love of the booms you spoke of, I would be in a different situation. However, I am no where near that. Think if you were my age and you settled for what "safe" investments gave us today. Lets just say 2% for kicks (I know if I got 2% right now in any safe investments I would be doing a tap dance.) If you got just 2% on your investments over the past 20-40 years, how different would your retirement situation look right now? How many more years would you have to save? How much smaller would your monthly budget be?

I am not saying this as a sob story, or as a "poor us young guys and gals." But more of a do we really have an option at this age other then stock market? Again, I guess just making more money and saving more overall could help, but i have done projections of "what if I put all my savings into a savings account till i want to retire." And with what we are currently looking at, it's not a pretty sight (and this is with me saving over half my pay checks.)

Anyways, just a thought. Thank you for your input DH, again, I enjoyed it, just don't know if we really have other vehicals right now.

Youngun,

It's not quite as bad as how you seem to see it. Stocks return a little more than a risk-fee security because investors demand the extra return to compensate them for the extra risk they are taking. Over the past century or so, and there is some evidence of even longer, the extra return has been about 6%. With Treasuries yielding around 3-5%, you get the historic 10% stock return. But remember that inflation has averaged about 5% over that same time so that the purchasing power you accumulated was less than it might seem.

The market is implying that inflation and the risk-free return will both be about 2.5% over the next 30 years. If you add in a slightly lower risk premium of 4.5-5% you get an expected stock return of about 7-7.5%. I believe that is consistent with what is going on and is about what John Bogle is predicting as well. So stocks will probably still be the place to be BUT, the return will not be as high as it has been so that other alternatives might be relatively more attractive.

The big question will be the same as it has always been - what will happen with inflation and geopolitics. Inflation is not on the horizon in spite of what many say. The Fed is basically trying as hard as it can to create inflation but has been unable to do so. Inflation could actually be very helpful right now. We'd be paying back our debt with cheaper dollars. I suspect sometime in the next 30 years we might see higher inflation but probably not anytime soon. And the flip side of all the monetary expansion the Fed has pursued recently is that they are now in a position to slam on the brakes hard if necessary.

I also think that the US's (and Europe's) position in the world is declining. We will continue to be among the strongest countries but we will not be the source of growth and we will not be able to unilaterally call the shots as we have. I think we'll see a shift of economic power toward Asia and Latin America. (Think of what happened to the British empire - nothing dramatic, and they are still a military power, but economically they are nothing like they were 50-100 years ago)

The bottom line is that I don't think we are headed for hard times, I think instead we will see stability. You don't need to take a lot of risk to do well in times like that. And folks like you who actually save and plan for their future will always be better off than those that don't.