The Hoopla over the Dow 13,000

Humans have a fascination with numbers. They play important roles in our lives, and in the development of language, culture and civilization. Pythagoras, a Greek philosopher best known for the Pythagorean theorem, concluded that everything in the universe was a number.

So what about the Dow 13,000? It’s just another number. We’ve crossed that level a dozen times in 10 years. However, it represents the value of a basket of stocks (an index). Historically, that value has a permanent uptrend, periodically interrupted by downturns. And 13,000 is about twice the market’s worst in March 2009, and almost 30 times since I was born.

Here are more important numbers.

134,000 – The Dow my daughter might see in 40 years when she’s most serious about her financial future. It reflects a 6% average annual growth rate. However, more important is for you to know Your Number – the amount of wealth you need to accumulate to support your lifestyle in retirement (and keep pace with inflation), after considering your other sources of income. If you retired today, lived another 3 decades, and needed $5,000 per month (in addition to SS, pension, rent, etc.), you’d need approximately a $1.4 million nest egg (excluding your home). And if you’re not yet retired, Your Number should also tell you how much to save and how hard the money should work. Investing with too much risk can be as dangerous as taking on too little.

66 and 6 – My full retirement age for Social Security. It’s based on your age and ranges from 65 to 67. You can start as early as 62 (about 30% benefits reduction) or delay until age 70. And more people are working longer – beyond the mythical ‘goal line’ of age 65 – by choice (e.g. need to stay engaged) or necessity (e.g. need the income or benefits). I hope the full retirement age is extended (or increase FICA payments, or other solutions to correct a currently unsustainable program). Nevertheless, working beyond age 65 seems ok. Why cram all my leisure years into the last decades of my life? I’d likely become bored, and then worse… boring.

6% – Workers may be automatically enrolled in 6% contributions to their 401k plan, unless they opt out. It’s a nifty way to help avoid making money mistakes – e.g. not saving or saving enough. Inertia is a powerful behavioral fault – an object at rest tends to stay at rest. If it’s too hard to ‘check’ a box or go online to enroll, some 401k plans automatically sign you up. Nevertheless, you still need to make some decisions and make responsible investment choices. And if you can’t “afford” to save 6% today, then save for tomorrow, tomorrow – sign up for 3% for 2012, and next year, increase it by another 3% (i.e. 3%, 6%, 9%, etc.)

We want staying power (not just achieving Dow 13,000)… to retire and stay retire… for wealth to stay and endure for generations to follow. That’s why diversification among investments, styles and strategies are so important. Have a long term plan rich with options, and patience along the way. Your financial success will be worthy of the headlines.

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