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Your ‘Set It and Forget It’ 401(k) Made You Rich. No More. — WSJ (apple.news)

submitted 1 year ago by [email protected] to c/[email protected]

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For four decades, patient savers able to grit their teeth through bubbles, crashes and geopolitical upheaval won the money game. But the formula of building a nest egg by rebalancing a standard mix of stocks and bonds isn’t going to work nearly as well as it has.

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[–] tburkhol 7 points 1 year ago (1 children)

Can't read this specific article, but I'll point out that the "4% rule" and similar strategies mostly come from historical analysis of only the US stock market and US treasuries. The 4% rule really only works in the US, Canada, and Australia - developed nations that weren't destroyed by WWI and WWII. The rest of the world has had "once in a generation" catastrophes every 20-ish years, which is just about once every generation. And not little micro-catastrophes like Covid or 2008 that recover after a couple years.

If you've only been saving since 2019, that is approximately no time at all. They may tell you that, on average, the stock market returns 8-10%/year, which might make you think that some of your savings should be up 40%, but that's not how it works. (US) stock market averaged 8% after inflation, 10% including inflation, through the 20th century, but its actual, annual return is more like 10±12%. You need a lot of years to average out that much variability.

The financial industry makes its money on fear. On people scared to make their own decisions, so turn to a professional; or people scared of the future so they do desperate, emotion-driven trades. The financial media are there to propagate that fear. Add to that going into an election year with a Democratic President, and you're going to see mountains of negative economic sentiment and outlook.

[–] [email protected] 2 points 1 year ago

Exactly.

The strategy that pretty much always wins is to buy and hold a diversified portfolio. Keep funneling money into it and focus on staying out of debt, maintaining a healthy budget and event fund, and finding fulfillment in life.

There are absolutely no guarantees in life, but generally if you save 10-20% if your money and invest it into broad market index funds, you'll be better off than those who don't, and probably set up for retirement.

That kind of advice doesn't draw clicks, but it's what middle class people who retire wealthy do. If you constantly follow the clickbait advice, that's how rich people end up in middle class retirements and how poor people end up working forever. Save 10-20%, invest in broad market indexes, and don't sell, and you'll likely have a middle class or better retirement.