This article was written over 6 months ago and languished on my desktop until now. 

The following is not to be construed as investment advice and is merely commentary by this author due to recent moves in the stock/bond markets and changes to interest rates as well as the price of gold.  All information provided herein is given on a best of effort basis only and the author does not guarantee that it is 100% correct; however, the bulk of the following is based upon fact and most of it can be verified at other sources.

A past acquaintance of mine adhered to the belief that the bulk majority of people’s retirement funds were based on the individual investing in the stock market.  I tried to point out the fallacy of his statement telling him that this was a recent phenomenon that occurred with advent of the 401k and IRA but it fell on deaf ears.  He didn’t seem to recognize that at one time prior to this period that many people in the US had actual retirement funds that were managed and funded by the company that they worked for, and that these funds paid the retiree a percentage of their top income once they retired.  The idea of a pension was a foreign concept to this person.

In particular I can remember the 1980s and one of several examples of pensions stands out.  It involved a kid named Jimmy whose father worked for the local steel plant, Armco.  I recall going over to Jimmy’s house a week or two prior to Christmas.  Although their house was a little smaller than the one I grew up in the living room was flooded with presents.  I’m talking about 100 presents of various sizes for two children.  This was approximately five times more than the number of presents per child that were normally at my house.  I was astounded and I asked Jimmy what his dad did, how did they get this many gifts?  Jimmy preceded to tell me that his dad worked for the steel plant and that his dad would receive a very good pension when he retired.  Indeed, his dad was raking in the bucks for nothing more than a manual labor job.

For those who don’t know, that wonderful company IBM, the one that helped that Nazis keep track of their prisoners in the death camps was the locus for change in the world of retirement.  IBM decided that pensions were simply too much of a drag on the company and it was around 1984 when they shifted towards the 401k plan for their employees with many other companies soon following suit.  For those who don’t recall this more or less coincided with the beginning of the end of really good jobs for Joe and Suzie lunchbox and the degradation in wages and job quality gained full steam once the Clinton-era began (as did the sucking sound of industry leaving, thanks Mr. Perot you were spot on as they say).

Likewise this person held the fallacy that the stock market was driven solely by fundamentals and that it always led to positive gains.  I don’t have space to tackle the former point (just look at all the various bailouts as a start) but for those who don’t recognize it only 22 of the past 40 years has the stock market really meet the latter criterion during recent times.  During the period of about 1984 to 2007 there was approximately a 90% price appreciation for the standard equity and bond portfolio of (60:40).  Home values also increased dramatically as well (ca. 70%) during this time frame.  It was a period where people could more or less invest blindly in market basket funds (e.g., mutual funds) and be guaranteed a return that exceeded inflation, and in many cases by then some.  What helped fuel much of this was the artificially low interest rates that were imposed. As the reader can see I haven’t documented this work.  You can do your own due diligence and see if the information that I provide here is indeed correct or not and should it be the latter then you can submit to me corrections as need be.  I want to conclude that the person whom I refer to as a former acquaintance decided to buy gold at around $1,600/oz a few years ago in part due to my constant harping about the price being way below the true value.  If this person held his position he would have definitely benefited from my commentary.  On the other hand, if he abandoned his position all I can say is tough luck, you have officially missed the gold train.