The damage done
There was an article on Bloomberg over the weekend that discussed the divergence between the improved trends in the economy and financial markets and the generally negative public perception of the economic landscape. As an example the article stated that "among those who own stocks, bonds, or mutual funds, only 3 out of 10 respondants to a Bloomberg poll say the value of their portfolio has risen since a year ago, a near impossibility given the size and breadth of market gains".
The reporter's opinion seems logical and it would seem to be a perfect example of perception overriding facts. The question here is could the poll counterintuitively be accurate? The poll was broad-based and therefore certainly included many people whose assets were modest, as well as those who have both market experience and excess asset capacity beyond what is needed for a several year horizon and emergency reserves. If the former were, in fact, a majority of the poll, which would likely be closer to a proxy for the American public's financial demographics, then the results could in fact be accurate.
For example, having had the opportunity to look at the financial profiles of several hometown retirees who were interested in advice, their position typically was income streams from social security, small annual distributions from an IRA, and a small annuity from an ESOP rollover at their former employer. This provided just enough to live on in a decent way without frills in an inexpensive place to live. Beyond that one such individual proudly showed me an equity and bond portfolio of $220,000. With that as a cushion perhaps hit by a 30% reduction in late '08 and early '09, would the reaction have been to stay the course or risk more or pull out and go into the safest assets possible. Was there any viable choice to continue to risk what little financial security was remaining?
For many the answer may well have been like the poker player regretfully folding, no longer having the financial back-up to continue to play. If this scenario happened broadly, a possibility, the poll results could be closer to being right than wrong, and indicating locked in lasting financial damage for many despite the comeback that many with more wealth have experienced.
The reporter's opinion seems logical and it would seem to be a perfect example of perception overriding facts. The question here is could the poll counterintuitively be accurate? The poll was broad-based and therefore certainly included many people whose assets were modest, as well as those who have both market experience and excess asset capacity beyond what is needed for a several year horizon and emergency reserves. If the former were, in fact, a majority of the poll, which would likely be closer to a proxy for the American public's financial demographics, then the results could in fact be accurate.
For example, having had the opportunity to look at the financial profiles of several hometown retirees who were interested in advice, their position typically was income streams from social security, small annual distributions from an IRA, and a small annuity from an ESOP rollover at their former employer. This provided just enough to live on in a decent way without frills in an inexpensive place to live. Beyond that one such individual proudly showed me an equity and bond portfolio of $220,000. With that as a cushion perhaps hit by a 30% reduction in late '08 and early '09, would the reaction have been to stay the course or risk more or pull out and go into the safest assets possible. Was there any viable choice to continue to risk what little financial security was remaining?
For many the answer may well have been like the poker player regretfully folding, no longer having the financial back-up to continue to play. If this scenario happened broadly, a possibility, the poll results could be closer to being right than wrong, and indicating locked in lasting financial damage for many despite the comeback that many with more wealth have experienced.
posted by John Borden at 11:29 AM
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