Family net worth down almost 40%

Hoplite · Post by **Hoplite** » Tue Jun 12, 2012 4:46 pm

From the Wall Street Journal:
http://blogs.wsj.com/economics/2012/06/ ... 2007-2010/
It's a reminder that even a modest ERE is well above the median of what most people actually achieve, even in a prosperous country. Perhaps an antidote to worrying about the lack of millions that may never come.
It ends on an even more distressing note:
"The proportion of families that said they had saved in the preceding year fell from 56.4% in 2007 to 52% in 2010, the lowest level since the Fed began collecting that information in 1992."

tac · Post by **tac** » Tue Jun 12, 2012 4:53 pm

I saw this in the NYT. Reading the comments is very enlightening also (not so much in a "wow, great info" way as a "wow, so this is how the mainstream thinks" kind of way).

jennypenny · Post by **jennypenny** » Tue Jun 12, 2012 5:58 pm

I can't pull the article up on my phone. Does it take into account the run-up in net worth preceeding 2007 due to the (artificial?) run-up in housing prices? If net worth was artificially high in 2007 it follows that it would drop to correct itself. Or does it drop even more than that because people cashed out the artificial equity in their homes?

George the original one · Tue Jun 12, 2012 6:04 pm

Yes, it includes home equity. There are many factors, but when it comes to housing, many people lost their home equity without even attempting to withdraw it.

Hoplite · Post by **Hoplite** » Tue Jun 12, 2012 6:09 pm

@jennypenny,

The article acknowledges that much of the decline is due to the housing crash, but incomes also fell during the period, the largest income declines roughly corrolating with the hardest hit areas for housing. Much of the substance in the article is known, it's just the numbers that were a bit startling.
@tac,

Yes, the comments are something; everyone waiting for their favorite politician, party and political philosophy to put some chickens in the pot, and when they don't materialize, blame the ones that they don't like.

jennypenny · Post by **jennypenny** » Tue Jun 12, 2012 10:26 pm

Finally able to read it. That's so depressing. And it seems like if you lived where the jobs disappeared you also took a big hit on your real estate value. Sad.
I feel badly for people like dragoncar. Someone his age--even if they've done everything right--has effectively been losing ground since college. I can see where the PP or buying real estate would look appealing if that's been your experience.

Hoplite · Post by **Hoplite** » Tue Jun 12, 2012 11:05 pm

I saw retired people return to work (if they could) and non-retired people put it off indefinintely after each crash; tech, housing and financial. Even, for a limited group, the Madoff swindle. What is infuriating is that each had their resolute cheerleaders and defenders. I remember one financial advisor, all the way to 2007, telling people they were saving way too much and should plan to retire on home equity and social security. I hate to think how that second leg is going to pan out.

Post by **jacob** » Wed Jun 13, 2012 1:08 am

Indeed, the median and even the average [and this in a country which has one of the most uneven distributions of wealth in a developed country] is way below the often touted "one million dollars" needed to retire. Practically anyone reading this is doing way better than median---it doesn't take much.
In terms of retirement savings for investment novices (and the many who wishes to remain so), the self-directed 401k as a general policy can probably be considered an epic mistake. Too many manage to screw it up be cashing it out for a penalty to pay off their credit card debts after a job loss.
I saw a suggestion (I think in AAII) about a product similar to TIPS in which one could buy government guaranteed inflation adjusted annuities as a retirement plan instead of relying on the vagaries of the stock market which is increasingly turning into a scheme where the informed take/get money from the uninformed.

secretwealth · Post by **secretwealth** » Wed Jun 13, 2012 1:34 am

"the stock market which is increasingly turning into a scheme where the informed take/get money from the uninformed."
If this is the case--and I'm almost entirely convinced that it is--doesn't it make sense to invest in CEFs and ETFs with large institutional ownership?

Post by **jacob** » Wed Jun 13, 2012 1:42 am

NO! When the market is sliding as in 2008/09 and the S&P500 goes down and retail investors are selling because they need the money now (to fund their fears or retirement) and can't sit it out for 3-4 years, who's buying?
Then when the market is rising and people are putting money back into the market, who's selling against it?
You can't beat them, so join them. That either requires fantastic nerves or enough surplus money to not care about it in the short run. (Alternatively, you have to be in illiquid investments which the big guys can't touch due to scaling constraints, e.g. real estate individual houses or small/microcap. This requires great skill.)
TL;DR WS has found a way to prey on uninformed investors and it's called volatility.

jennypenny · Post by **jennypenny** » Wed Jun 13, 2012 4:43 pm

Interesting numbers from the report:
Median family net worth in 2010 dollars:

1989: $79,600

1992: $75,400

1995: $81,200

1998: $95,500

2001: $106,100

2004: $107,200

2007: $126,400

2010: $77,300
We were married in 1989 so I have a good frame a reference for these numbers. It's startling to me that in all that time, including the Clinton years and the tech boom, families haven't gained any ground.
My only question about those numbers is whether they include most immigrants. I bet that would push the number up a little. Immigrants are probably grossly under-reported because either they aren't on the books at all or they don't keep their money someplace where it can be counted. (I remember when a friend was selling her house in Philly, a Chinese family showed up with a bag full of cash to buy the house.) Still bad though.

secretwealth · Post by **secretwealth** » Wed Jun 13, 2012 4:52 pm

Jacob: I'm not so sure I agree. The premise that the informed are using the open market to take money from the uninformed isn't really backed by recent performance. Investment banks and hedge funds broadly have been seeing very low returns for the past couple of years. Surely if they were using their greater knowledge to take money from uninformed investors we'd see strong profits coming from C, GS, and hedge funds, instead of their dismal or negative returns.

Dragline · Post by **Dragline** » Wed Jun 13, 2012 5:11 pm

The generational aspects of this:
http://blog.lifecourse.com/2012/06/once ... -silent-2/

jennypenny · Post by **jennypenny** » Wed Jun 13, 2012 5:35 pm

Conclusion from the article dragline posted...

"Just-released Fed data confirms what we have always known about likely economic trajectory of today’s generations: Through the Third Turning and into the initial stages of the Fourth, the Silent will prosper, Boomers will cope with declining expectations, and Gen-Xers will get hammered."
Looks like I have to add "Generations" to my summer reading list. Discussions about the Fourth Turning keep popping up here.

Chad · Post by **Chad** » Wed Jun 13, 2012 6:13 pm

Hopefully, this is just one more piece of information that pushes the general population towards saving a little more. Even if they would just cut expenditures by 5-10% it would be huge. Not everyone has to give up shampoo and eat beans/rice for every meal.
@Dragline

Great article. Neil and Strauss did really well in identifying and predicting big trends in their books, articles, etc.
@secretwealth

Some of the problems with the entities/organizations you listed taking advantage of the market is due to their size. They move and the market moves, which makes it difficult for them too. Though, not impossible.
Another negative towards the profits of the banks (C, GS, etc.) is that they aren't out of the woods on bad debt, yet. They are probably seeing their profits from trading being eroded by other negative areas. Though, I haven't looked at their financial statements to know for sure.

Chad · Post by **Chad** » Wed Jun 13, 2012 6:16 pm

@jennypenny

They also wrote a book titled, "The Fourth Turning." It's newer (late 90's) than Generations and more focused on what will happen over the next few decades.

KevinW · Post by **KevinW** » Wed Jun 13, 2012 7:26 pm

I saw a suggestion (I think in AAII) about a product similar to TIPS in which one could buy government guaranteed inflation adjusted annuities as a retirement plan...
Or maybe they could just buy individual TIPS and plan to live on the coupon payments? That's Zvi Bodie's plan ( http://zvibodie.com/Worry_Free_Investing ) and one could certainly do a lot worse.

Post by **jacob** » Thu Jun 14, 2012 1:48 am

@secretwealth - You need to consider a complete credit cycle---hence long term.

secretwealth · Post by **secretwealth** » Thu Jun 14, 2012 2:11 am

Ah, on a long term scale you're definitely right. It seems things changed in 2008, though--but maybe not for long.

Ego · Post by **Ego** » Thu Jun 14, 2012 2:15 am

@secretwealth:"The premise that the informed are using the open market to take money from the uninformed isn't really backed by recent performance. Investment banks and hedge funds broadly have been seeing very low returns for the past couple of years. "
The informed have added a layer or two of obfuscation to take from the collective uninformed.
http://www.nytimes.com/2012/06/10/busin ... wanted=all