The Retirement Rise 2.13.2023
On Pensions, Bearish People and Bullish Stocks, and Financial Freedom
This Week’s Good Financial News
According to Bloomberg, pensions are in their healthiest financial position in two decades. This is great news for corporate America and pensioners alike. Additionally, due to higher interest rates, pensions can de-risk their investment portfolio, ‘neutralizing’ future pension payments (retirement income in the eyes of the recipients) by selling stocks and buying bonds.
From the article: For some of America’s biggest bond buyers, the soft-versus-hard-landing debate on Wall Street might be a sideshow. They’re getting ready to swoop in with as much as $1 trillion, no matter what happens.
One of the pillars of the trillion-dollar pension fund complex is now awash in cash after struggling under deficits for two decades. This rare surplus at corporate defined-benefit plans, thanks to surging interest rates, means they can reallocate to bonds that are less volatile than stocks — “derisking” in industry parlance. —Bloomberg
An Investment Note for Retirees
Investors are incredibly bearish these days. Recession risk, high stock valuations, rising interest rates, inflation, debt-ceiling brinkmanship, and a general malaise of negativity and economic anxiety are taking their toll on investor optimism.
According to the AAII Sentiment Survey, the current bullish investor sentiment of 29.9% is well below the historical average of 37.5% for the 57th consecutive week.
And yet, despite this void of pessimism, stocks have performed well since the start of 2023 through February 9th. As you can see below, international stocks (MSCI EAFE index in green), emerging market stocks (MSCI Emerging Markets index in orange), and the S&P 500 (blue) are all up high single digits this year.
Does this mean there couldn’t be more ups and downs? Of course not, but it’s an excellent time to remind ourselves of some core investment principles:
First, the market is not the economy.
Nor is the market our feelings about the economy.
The market is also not our feelings about investing.
Sound investing does not include our feelings about the market.
Ultimately, principled investing is buying a diversified portfolio of global stocks and holding for the long run despite our feelings about the economy and stock market.
A Thought on Retire on Purpose
Being financially free can mean so many different things to different people. It can be the ability to travel and stay in the finest hotels. It can be the ability to travel while carrying everything you own in a backpack. It can be living in a penthouse in Manhattan after being made partner at your law firm. Or, it can be living debt-free in a tiny home out in the sticks. Driving a Tesla or riding your bike, starting a new business or retiring early, focusing on your passions or focusing on your family, buying an organic farm or simply affording organic at the local co-op—these can all be forms of financial freedom.
Ultimately, financial freedom is about the pursuit of enough. And each of us needs to ask ourselves, realistically: What does “enough” mean to me? —from Money with Purpose
Have you ever thought about that? The idea of enough?
What does enough mean to you?
How might this impact your retirement?