Is Tampering With a 401 K a Good Idea?
What do you think the stock market is going to earn over the next decade? Well, Fidelity Investments conducted their annual millionaire outlook study, which is geared towards millionaires, between the ages of 21 and 51 and asked the question. The study was designed to find out about return expectations of their investments.
The answer came back at 16% annual average returns.
The researchers at Fidelity were shocked at the results. For me, I actually didn't find the results that shocking for several reasons. Bull markets like the one we are in right now condition people to think differently. First, investors think that it is different this time and risk doesn't really exist.
Second, returns like the ones that we have had recently make everyone an investment genius. After all, look at all of the money that I made in the portfolio that I put together.
Third, bull markets like the one we are in raise the expectation levels because it is so "easy." I will never forget in 1999 at the height of the technology bubble I had a client who was up 23% year to date and upset that he was not up 30%.
How about a reality check! The Vanguard S&P 500 index fund is designed to mimic the S&P 500 which I would call the stock market. Between 1/1/2000 and 9/30/2017 returned a paltry 4.98%. With the incredible rise in the stock market that is it. Bear Markets are part of the cycle.
So millionaires between the ages of 21 and 51 unless you are part of the top 1/2 percent that can make money in both markets and are the masters of risk taking, you might want to lower your expectations a bit. In fact, for those who take that high level of risk, greed always seems to get in the way and spill over to ineffective decision making.
The real reason that this does not shock me because people tend to be unrealistic about everything stock market wise when we are at or close to a top in a bull market which is where I think we are right now.