25 year old IRA

[PJJ]

Okay, I have a friend who has put the maximum in his IRA since high school. In 2000 he lost most of it. Now, with it is only worth $70,000. He put it mostly in stocks and did not invest in anything crazy.

Is the old adage of 8% as big of a conspiracy for financial markets as the medical community practicing medicine on a healthy population?

I can not get over the balance. He received less than 1% annually. Thankfully he has 20 more years, but I am worried that there are many in this boat...

Please share your experiences.

Best,
PJJ

[Emmeline II]

[ShaggyDaddy]

Originally Posted by PJJ

He put it mostly in stocks and did not invest in anything crazy.

mostly in stocks is actually catagorized as a risky investment strategy.

If you use standard indexes or measures like the S&P or the Nasdaq there has never been a 5 year period where averages didn't go up.

Investing isn't really all that simple, but basically you NEED to protect some portion of your money with "safe" things like bonds, "safer" things like mutual and managed funds, and "risky" things like stock. If you don't protect some of your money then you can lose "most" of it in a tech or finance sector meltdown like 2000 or 2007 respectivly.

The bigger risks have the bigger potential rewards, that is true... but it isn't called "risk" for no reason.

It sucks that this happened to him (it is as if he put 230 dollars a month into a mattress) but it is good that he has some time left to persue safer investment strategies.

[velochic]

Without knowing more about the investment portfolio, there is really no way to discuss why his returns would be so low. The market average has been about 10.6% annually since then. Best blind guess is either 1). The majority of the IRA was in a single stock that tanked or 2). He used a broker that screwed him 3). He made some poor decisions as IRA laws changed and somehow got stung by taxes during transfers when he could have moved the money tax-free. IRAs have only been around since 1974. Something seems fishy about this. More info would be handy.

[mightymoo]

Investments are something that need to be watched carefully. I can easily believe this could happen if he just put the money in the IRA in a mix of individual stocks and never managed it.

[kijip]

If he lost most of it in 2000, I am assuming it was most likely heavily tilted towards individual tech stocks. My FIL did that and lost hundreds of thousands of dollars in 2000. : That was not a sound investment approach.

Our IRAs are in a mix of mutual funds and bonds. I don't expect to see huge gains, but steady and slow wins the race.

[PJJ]

Thank you..

I really wanted to get some feedback from others who actually have had a 25 year IRA. I have talked to others, and they seem to be in the same boat.

I know there is some judgment for him, but he did not leave it alone. And it was diversified.

So, should we all have to be financial experts?

Is there anyone out there that can look at how much they have put in and actually what their return was?

Thanks again.

I am getting closer to the conspiracy theory until some folks step up here and can tell me that they have had great returns in the last 25 years.

[Jadzia]

It really depends on what investments he has in his IRA.

If he bought index funds 25 years ago and and just left them there, they would be worth quite a bit more now. Even if he had "lost" value in 2000, if he had done nothing and continued to invest he would have more than made that up by now.

But if you were heavily invested in individual stocks, or if you frequently traded every time the fund went soft, you could lose a lot. (When you sell low, you are locking in the losses.)

If you buy and hold index funds long term you will come out ahead in the long run than if you are trying to "beat" the market.

[velochic]

I just did a quick calculation and dh's returns (he's had his longer, since he's older... he's 52) were about 7.145% annually. I want to mention, though, that the way we have our portfolio allocated is that we keep the income generating funds (bonds, for example) in the tax-sheltered accounts because the bulk of our assets are taxable (in which we have 100% stocks to lower our tax liability). So the IRA is going to have lower returns due to the fact that they are bond-heavy. I only tinker with the funds if the earnings unbalance our target allocation goals, so I rarely do any buying or selling. Usually if I do, it's because the fund has migrated to being a different fund type (for example a small cap growing into a mid cap) or if it's changed managers (although the majority of our funds are index funds).