# The stock market is back. Are retirement funds? **URL:** \ **Category:** Factual Questions\ **Created:** [October 24, 2012, 7:10pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752 "2012-10-24T19:10:29Z")\ **Posts on this page:** 15\ **Page:** 2
**Author:** ![SpoilerVirgin](https://avatars.discourse-cdn.com/v4/letter/s/4491bb/32.png) [@SpoilerVirgin](https://boards.straightdope.com/u/SpoilerVirgin)\ **Post date:** [October 28, 2012, 8:40pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/21 "2012-10-28T20:40:54Z")
> [@Sinisterniik](#): > > Oh sure! I wonder if there is a dollar number that could be used to compare the amount of savings Americans have today (ie $4,000,000,000) to the amount we had saved in 2007/2008 before the crash, adjusted for inflation. It’s a difficult number to identify. You could look at the [amount of savings in depository institutions](http://research.stlouisfed.org/fred2/series/WSAVNS), but this only includes savings accounts, and not investments, which make up the majority of retirement savings. There are also a number of calculations for [gross savings](http://www.indexmundi.com/facts/united-states/gross-savings) that compare total income to total consumption. Although it wouldn’t give you the complete picture, you could also look at [total U.S. retirement assets](http://www.pionline.com/article/20120402/DAILYREG/120409985) to see how things have changed since 2008. ---
**Author:** ![Snnipe\_70E](https://avatars.discourse-cdn.com/v4/letter/s/b5a626/32.png) [@Snnipe\_70E](https://boards.straightdope.com/u/Snnipe_70E)\ **Post date:** [October 29, 2012, 4:57am UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/22 "2012-10-29T04:57:27Z")
It depends. Most retirement funds were invested in more than just the stock market. Some on the money was also invested in real estate, bonds and other funds. So they are not back where they were. ---
**Author:** ![Sinisterniik](https://avatars.discourse-cdn.com/v4/letter/s/51bf81/32.png) [@Sinisterniik](https://boards.straightdope.com/u/Sinisterniik)\ **Post date:** [October 29, 2012, 6:05am UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/23 "2012-10-29T06:05:27Z")
Thank you, **SpoilerVirgin**! Those articles definitely satisfied my curiosity. My takeaway is that Americans saw their savings diminish during the crisis and have yet to restore them, but total retirement assets have rebounded very solidly (comparing your “gross savings” link to your “total U.S. retirement assets” link). And as was mentioned, retirement assets significantly outweigh savings. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [October 29, 2012, 3:33pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/24 "2012-10-29T15:33:04Z")
> [@allotrope](#): > > Diversification is your friend. But that means across asset classes not just buying different stocks or bonds. So add emerging markets, real estate, commodities, and a variety of others in an percentage that matches the risk of that class to your tolerance and your needs. Did diversification help? I’m pretty sure that just about every conceivable asset class fell precipitously during the 2008/2009 crash. At least Harry Markowitz had enough sense not to attempt to use Modern Portfolio Theory for his own retirement planning. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [October 29, 2012, 3:42pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/25 "2012-10-29T15:42:53Z")
> [@Surreal](#): > > I’m pretty sure that just about every conceivable asset class fell precipitously during the 2008/2009 crash. Treasuries appear to have gained. Corporate bonds, (except perhaps the highest quality ones,) not so much. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [October 29, 2012, 4:28pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/26 "2012-10-29T16:28:47Z")
> [@Surreal](#): > > Did diversification help? I’m pretty sure that just about every conceivable asset class fell precipitously during the 2008/2009 crash. At least Harry Markowitz had enough sense not to attempt to use Modern Portfolio Theory for his own retirement planning. Cash is an asset class, and it obviously did not lose anything. Bonds lost less than stock. Utilities lost less than financial industries. Also, MPT and diversification in general never promise that you won’t have losses. 2008 and 2009 are an example of risk, and nobody (well, no one being truthful) says that you can avoid it. All they promise is that you get an improved or optimal risk vs reward trade off. All rational investors EXPECT crashes like 2008-2009 to occur periodically. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [October 29, 2012, 5:00pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/27 "2012-10-29T17:00:46Z")
> [@dracoi](#): > > All they promise is that you get an improved or optimal risk vs reward trade off. MPT could do this if you could accurately forecast the returns of each individual asset class (you can’t), if you could accurately forecast correlations of returns between asset classes (you can’t), if the standard deviation of returns were a true measure of an asset’s risk (it isn’t), and if the correlation in an up market was identical to the correlation in a down market (it isn’t). Rational investors don’t rely upon grossly oversimplified mathematical formulas for retirement planning. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [October 29, 2012, 5:09pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/28 "2012-10-29T17:09:30Z")
> [@OldGuy](#): > > This isn’t quite right either. the Dow is back where it was, but the DJIA doesn’t include dividends. The dividend yield on the Dow is estimated at 3% right now, and I believe it was higher during the past few years. So if you expected 5% return you only lost 2% if it. On the other hand, you should have expected a bit more than 5% on the Dow. If we’re going to be this detailed, don’t forget that mutual funds - investment vehicle for most people - typically have a management fee of 1% to 3%, whether the fund makes money or not. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [October 29, 2012, 5:27pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/29 "2012-10-29T17:27:42Z")
> [@Surreal](#): > > MPT could do this if you could accurately forecast the returns of each individual asset class (you can’t), if you could accurately forecast correlations of returns between asset classes (you can’t), if the standard deviation of returns were a true measure of an asset’s risk (it isn’t), and if the correlation in an up market was identical to the correlation in a down market (it isn’t). > > Rational investors don’t rely upon grossly oversimplified mathematical formulas for retirement planning. So your response to “No, diversification did make a difference” is “But the math is oversimplified”? The factual answer to your previous question is that diversification did make a difference during the financial crash. I don’t really care what method you use to diversify your portfolio. I suspect that even reading tea leaves to guide diversification is a better investing strategy than not diversifying. ---
**Author:** ![Don\_t\_Call\_Me\_Shirley](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@Don\_t\_Call\_Me\_Shirley](https://boards.straightdope.com/u/Don_t_Call_Me_Shirley)\ **Post date:** [October 29, 2012, 5:35pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/30 "2012-10-29T17:35:07Z")
Fortunately for me, I didn’t touch my retirement, on the advice of my investment guy. I did make some changes to my 529s though. I’m concerned about where the market is now though. IIRC, it was around 14,000 when it crashed. I thought the reason it crashed was because it was way overvalued, the money existed only on paper, and the crash was the market readjusting to its actual value. So now that it is approaching 14,000 again, what is different this time? Is it actually worth that, or is it overvalued again? ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [October 29, 2012, 5:37pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/31 "2012-10-29T17:37:41Z")
> [@dracoi](#): > > So your response to “No, diversification did make a difference” is “But the math is oversimplified”? > > The factual answer to your previous question is that diversification did make a difference during the financial crash. I don’t really care what method you use to diversify your portfolio. I suspect that even reading tea leaves to guide diversification is a better investing strategy than not diversifying. I assume that allotrope’s comment “So add emerging markets, real estate, commodities, and a variety of others in an percentage that matches the risk of that class to your tolerance and your needs” was referring to the use of MPT to reduce risk, but in fact the three low-correlated asset classes he mentioned performed just as bad if not worse than the S&P 500. ---
**Author:** ![Surreal](https://avatars.discourse-cdn.com/v4/letter/s/eada6e/32.png) [@Surreal](https://boards.straightdope.com/u/Surreal)\ **Post date:** [October 29, 2012, 6:35pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/32 "2012-10-29T18:35:15Z")
> [@Don\_t\_Call\_Me\_Shirley](#): > > I’m concerned about where the market is now though. IIRC, it was around 14,000 when it crashed. I thought the reason it crashed was because it was way overvalued, the money existed only on paper, and the crash was the market readjusting to its actual value. So now that it is approaching 14,000 again, what is different this time? Is it actually worth that, or is it overvalued again? It’s impossible to know but the stock market is currently priced well above its historic average by most valuation metrics. Two very good valuation metrics that we have reliable historic data for (Tobin’s q and Shiller’s Cyclically Adjusted Price-to-Earnings ratio) suggest that the market is now priced more than 50% above its average over the past century: [http://www.smithers.co.uk/page.php?id=34](http://www.smithers.co.uk/page.php?id=34) ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [October 29, 2012, 11:03pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/33 "2012-10-29T23:03:01Z")
> [@Surreal](#): > > I assume that allotrope’s comment “So add emerging markets, real estate, commodities, and a variety of others in an percentage that matches the risk of that class to your tolerance and your needs” was referring to the use of MPT to reduce risk, but in fact the three low-correlated asset classes he mentioned performed just as bad if not worse than the S&P 500. Yes, there were certainly some surprises in the extent and nature of the crash. However, I’d look at it all through the lens of statistics. If you announce results with a 95% confidence, you expect to be wrong 5% of the time. Financial models are probably not even that good - so you have to expect that forecasted earnings, risk and correlations are all based on historical trends. The 2008 crash does suggest that using normal distributions is a huge mistake - we’ve seen two crashes in 100 years that should be billions of years apart if normal distributions were the correct model. But until the nerds can come up with better models, I don’t think the markets have any choice except to use what we have. ---
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [October 30, 2012, 11:57am UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/34 "2012-10-30T11:57:53Z")
> [@dracoi](#): > > The 2008 crash does suggest that using normal distributions is a huge mistake - we’ve seen two crashes in 100 years that should be billions of years apart if normal distributions were the correct model. But until the nerds can come up with better models, I don’t think the markets have any choice except to use what we have. There are better models: > **[Fat-tailed distribution | Applications in economics](https://en.wikipedia.org/wiki/Fat_tail#Applications_in_economics)** > > In finance, fat tails often occur but are considered undesirable because of the additional risk they imply. For example, an investment strategy may have an expected return, after one year, that is five times its standard deviation. Assuming a normal distribution, the likelihood of its failure (negative return) is less than one in a million; in practice, it may be higher. Normal distributions that emerge in finance generally do so because the factors influencing an asset's value or price are mathe... People are making money with these models: > **[Nassim Nicholas Taleb](https://en.wikipedia.org/wiki/Nassim_taleb#Finance_career)** > > Nassim Nicholas Taleb\[a\] (/ˈtɑːləb/; alternatively Nessim or Nissim; born 12 September 1960) is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst, and aphorist. His work concerns problems of randomness, probability, complexity, and uncertainty. > Taleb is the author of the Incerto, a five-volume work on the nature of uncertainty published between 2001 and 2018 (notably, The Black Swan and Antifragile). He has taught at several universities, serving as a ... ---
**Author:** ![allotrope](https://avatars.discourse-cdn.com/v4/letter/a/edb3f5/32.png) [@allotrope](https://boards.straightdope.com/u/allotrope)\ **Post date:** [October 30, 2012, 4:06pm UTC](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752/35 "2012-10-30T16:06:18Z")
> [@Surreal](#): > > I assume that allotrope’s comment “So add emerging markets, real estate, commodities, and a variety of others in an percentage that matches the risk of that class to your tolerance and your needs” was referring to the use of MPT to reduce risk, but in fact the three low-correlated asset classes he mentioned performed just as bad if not worse than the S&P 500. That’s sort of the point and it’s really not that different than the principal behind most hedge funds. [Previous page](https://boards.straightdope.com/t/the-stock-market-is-back-are-retirement-funds/638752.md?page=1)