[quote=deadzone][quote=flyer]dz, I think you might underestimate the many sources of wealth some have, other than the obvious, and who have been living the lives they want to live for many years mostly independent of market conditions.
Per this discussion, whether this, or other demographics are large enough to sustain the continued acceleration of pricing in the real estate market remains to be seen, and should be interesting to watch.[/quote]
There is no doubt the primary source of wealth in the U.S. comes from RE and Stock appreciation. If those markets take a 30 or 40% haircut, the reverse wealth effect will be staggering.[/quote]
Wrong… And I’ll give you 2 very simple examples…
1. Housing: When one owns outright one’s primary residence and all their rentals free and clear with no mortgage, one doesn’t count on the property’s appreciation to make money. One treats the rentals no different than a pension, where it generates income no different than a job.
As nice as appreciation is for me, what matters to me these days for rentals is the $10k/month positive cashflow that is my “pension” on top of the W2 salary i take home. If I could double it, that would be ideal. Appreciation is just icing on the cake. slow, steady, and consistency always wins in the long run.
2. Stock appreciation…With the exception of tech workers and other workers that get RSU stock grants (more later), I would argue the vast majority of people who own stock/mutual funds/index funds on their own, have it primarily in the IRA/401k/403b/Roth/College 529k or other retirement accounts, and less so in an after tax brokerage account, or if they have both, have more in the former than that latter. Simple reason is because of tax deferral or tax exempt status of those accounts, and the power of compounding tax deferred or tax free…. And because of this, here’s the thing. You can’t touch those retirement accounts until you are close to retirement anyway without a huge penalty. So whether a 401k/IRA goes up or down when your in your 20ies,30ies, 40ies, 50ies…doesn’t really matter beyond just a number on a piece of paper..Hence, most people are not counting on their 401k right now for their day to day living expenses because they are still not old enough to use it. Even when you can touch those retirement accounts in your mid-50ies to sixties, that’s the last bucket of money you want to touch so you can continue to let it grow tax free. So what the stock market does in the short term, really doesn’t matter for the vast number of people who has stock/fund investments in their retirement accounts. Can’t do anything until 55-65 anywayway.
NOW, as one gets closer to retirement, people are dependent on these accounts…BUT….what they should have done if they plan right is convert from higher risk stock investment to lower risk well before they needed to use it….lower return investments like bonds, cash, treasuries,etc for the very reason that IF there is a stock market correction, they are safe… I did this for my kids’s 529 college savings account. It’s seen a lot of appreciation, and my kid will hopefully need it in 2 years, so end of last year, I moved most of it out of stock investments into a target fund “graduation year xxxx” that changes the allocation to more shorter term the closer the date gets to the time my kid graduates.So right now even if the start market has corrected, it’s only seen about a 2% decline versus the -14.34% YTD of the S&P500.
So most people probably have far less after tax stock investments, with the exception of company issued RSU/stock grants. As far as stock grants…Most people who work at a job don’t get it. Tech is an exception to the rule, so tech workers typically get compensated by RSU on top of salary and cash bonus. But the inside scoop about RSU company stock compensation is that generally, one doesn’t keep most of the stock indefinitely. You sell and diversify a little at a time. That’s why you aways see CEOs, VPs, etc registered for time-based selling that automatically sells a portion of their company stock over regular intervals. It’s a way to diversify and avoid any sort of inside trading restrictions if you just arrange ahead of time for a time based scheduled selling. That’s why if you see a CEO sell a bunch of shares, it doesn’t mean he/she doesn’t have any faith in the company. He/she is simply cashing in a small percentage regularly, and collecting his/her retirement pension that way.
