Poor Choices And Bad Stewards
July 2024
Two stories in the Wall Street Journal today caught my attention and really shook me up. They illustrate the critical importance of financial responsibility and the consequences of poor money management. Long-time listeners know I don’t sugarcoat things. Today’s column will be no different.
The Cost of Inaction
The first story that blew me away was about workers missing out on billions of dollars in investment gains by yanking their money out of the stock market after switching jobs. When people switch jobs, they often roll their 401(k) into an IRA for more control over their investments. However, many do nothing after the rollover. They leave their money sitting in cash, losing out on potential gains.
A recent study found that nearly a third of those who rolled savings into IRAs still had their balances sitting in cash seven years later. Americans with cash-heavy IRAs lost more than $172 billion annually in potential retirement wealth that could have been generated by investing in stocks and bonds.
I get it; life is busy and complex. But neglecting your finances is a costly mistake. One financial advisor recounted how a couple rolled over $400,000 from a 401(k) to an IRA, only to leave it in cash for years. They couldn’t understand why their money wasn’t growing while the markets soared.
The excuses are varied. Some account owners feel overwhelmed by the many investment options IRAs offer. But help is available. You wouldn’t go to a restaurant, look at a complex menu, and then decide not to eat, would you?
A survey of 500 Vanguard IRA clients who completed a rollover in 2023 found that 68% had no idea what their money was doing. This is alarming. Taking control of your finances is crucial.
Facing Financial Peril at 60
The second story, titled “America’s 60-Year-Olds Are Staring at Financial Peril,” painted a bleak picture of the financial situation for many nearing retirement. They featured a woman in Washington state, now 60, who is part of the tail end of the baby boom generation hurtling towards retirement with uncertainty.
The article noted that this generation is still dealing with the financial bruises from the 2007-2009 recession and the shift away from guaranteed pensions. However, the move away from pensions has been happening for a long time. Blaming this shift ignores the opportunities individuals had to invest in 401(k) plans or IRAs.
One woman lost half of her $20,000 in her 401(k) during the financial crisis. Instead of staying invested, she sold everything, paid the penalties, and withdrew the remaining amount. This is a classic example of buying high and selling low—one of the worst financial mistakes you can make.
The article suggested that many younger boomers will face financial instability, relying heavily on Social Security. But this is not a new issue. Life has always been uncertain. The key is to save diligently and make smart financial choices.
The Lesson of the Ant and the Grasshopper
This situation reminds me of Aesop’s fable, “The Ant and the Grasshopper.” The ant works hard all summer, saving for winter, while the grasshopper plays. When winter comes, the grasshopper is unprepared. In a modern twist, the grasshopper demands the ant’s resources, and the ant is penalized for being responsible.
The moral of the story is clear: we all make choices in life. Some are good, some are bad. The important thing is to learn from them and avoid repeating mistakes. Young people listening to this, take note. You don’t need to make a million dollars a year to become a millionaire. You need to be smart, prudent, and work hard.
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