Stock Market Not So Bad? Time To Diversify Retirement Investments

The EBRI, Employee Benefit Research Institute, makes my job easier and more fun.  They’ve surveyed thousands of Americans on retirement planning and other benefits over the years, and released many interesting (albeit dry) reports on the findings.  I wish they’d do a report on self-directed IRAs, but considering we SDIRA holders are maybe 4% of the market, we’re likely not loud enough to be counted.  Regardless, EBRI’s latest indicates that, on average, retirement plan finances aren’t as bad as many thought.

For example, while the Dow Jones dropped approximately 35% between Jan 1, 2008 and June 19, 2009 (don’t ask me why they chose these dates), the median account balance for retirement plans dropped only 16%.  This number was worse for families who had more than 100k (22% drop) and worse still for those in the top 10% net worth bracket (28%).   Still, that’s not so bad.

As always with the stock market, experts disagree and the regular Joe and Jolene are wondering – why?  Why is the average retirement plan loss (of those surveyed) less than the DJI loss?

Diversification.

And what is better than smart diversification?  More smart diversification.  Many think their only options are stocks or bonds (with a commission paid to the broker, of course.)  But now is the time to really diversify, especially with more employers no longer matching.  When the stock market drops, you can make money on real estate.  If real estate is rough, you can ride it out with a private placement.  If your mini-microsoft dies, your IRA is making money on the personal loan.

Diversification works for squirrels, who “scatterhoard” their winter storage in many different locations, and it’ll work for retirement investment.

Be the squirrel – diversify.

Photo courtesy of Gilles Gonthier