Why the Stock Market will continue to fall…

[contraman]

Lately, I have noticed several articles and stories written about how people are beginning to tap their "401K's / Retirement Accounts" to pay their bills and put food on the table. I have even seen a company that is promoting a debit type of card for these accounts to make the process easier and more convenient.

This is going to be a huge problem for the stock market going forward and here is why……

People contribute to their 401K every paycheck. This money goes into their account and then based upon the funds they have chosen, it is invested in a basket of equities.

This has been one of the main contributors to the rise of equities since the inception of this type of practice years ago. 401K's and Mutual Funds.

Here is what happens over the next few years.

A) People start to drastically reduce the amount of money taken from their paycheck every two weeks that goes toward their 401K to pay the bills.

B) People take early withdrawals from their existing retirement accounts to stay afloat (no more equity line bailout). (I have several clients doing this now to pay the mortgage).

C) Both of these practices will slowly drain the stock markets value over the next 3 to 5 years.

We may see a bear market in equities for years here as things continue to unravel in the housing markets….

[Coronita]

doubt it. depends on  what percentage of people are really in trouble.

Not everyone is in trouble.[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

doubt it. depends on  what percentage of people are really in trouble.

Not everyone is in trouble.[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

doubt it. depends on  what percentage of people are really in trouble.

Not everyone is in trouble.[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

doubt it. depends on  what percentage of people are really in trouble.

Not everyone is in trouble.[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

doubt it. depends on  what percentage of people are really in trouble.

Not everyone is in trouble.[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Anonymous]

Contraman, interesting idea, but do you have any numbers to back this up? (e.g., what percentage of equity value is purchased through 401k’s per income bracket)

My gut feeling is that if all of the people in, say, the lower half of median income cash in their 401k’s tomorrow it won’t have a big effect on the market.

But I am just guessing…

[Anonymous]

Contraman, interesting idea, but do you have any numbers to back this up? (e.g., what percentage of equity value is purchased through 401k’s per income bracket)

My gut feeling is that if all of the people in, say, the lower half of median income cash in their 401k’s tomorrow it won’t have a big effect on the market.

But I am just guessing…

[Anonymous]

Contraman, interesting idea, but do you have any numbers to back this up? (e.g., what percentage of equity value is purchased through 401k’s per income bracket)

My gut feeling is that if all of the people in, say, the lower half of median income cash in their 401k’s tomorrow it won’t have a big effect on the market.

But I am just guessing…

[Anonymous]

Contraman, interesting idea, but do you have any numbers to back this up? (e.g., what percentage of equity value is purchased through 401k’s per income bracket)

My gut feeling is that if all of the people in, say, the lower half of median income cash in their 401k’s tomorrow it won’t have a big effect on the market.

But I am just guessing…

[Anonymous]

Contraman, interesting idea, but do you have any numbers to back this up? (e.g., what percentage of equity value is purchased through 401k’s per income bracket)

My gut feeling is that if all of the people in, say, the lower half of median income cash in their 401k’s tomorrow it won’t have a big effect on the market.

But I am just guessing…

[peterb]

Interesting theory. A friend of mine that worked on Wall Street during the late 1990’s made the same observation…401K’s had drastically increased the amount of cash into the market since almost all of the contributions are made to mutual funds. I wonder if anyone has done an analysis of this?.
I also remember hearing some people doing the same thing during the last recession of 2002…e.i. withdrawing from their IRA’s to pay bills, etc… According to most financial analysts, people no longer save in the USA because they consider their IRA’s a type of savings account. So it stands to reason that they will take $$ from it in times of need. So the question is, “How much and for how long?”

[peterb]

Interesting theory. A friend of mine that worked on Wall Street during the late 1990’s made the same observation…401K’s had drastically increased the amount of cash into the market since almost all of the contributions are made to mutual funds. I wonder if anyone has done an analysis of this?.
I also remember hearing some people doing the same thing during the last recession of 2002…e.i. withdrawing from their IRA’s to pay bills, etc… According to most financial analysts, people no longer save in the USA because they consider their IRA’s a type of savings account. So it stands to reason that they will take $$ from it in times of need. So the question is, “How much and for how long?”

[peterb]

Interesting theory. A friend of mine that worked on Wall Street during the late 1990’s made the same observation…401K’s had drastically increased the amount of cash into the market since almost all of the contributions are made to mutual funds. I wonder if anyone has done an analysis of this?.
I also remember hearing some people doing the same thing during the last recession of 2002…e.i. withdrawing from their IRA’s to pay bills, etc… According to most financial analysts, people no longer save in the USA because they consider their IRA’s a type of savings account. So it stands to reason that they will take $$ from it in times of need. So the question is, “How much and for how long?”

[peterb]

Interesting theory. A friend of mine that worked on Wall Street during the late 1990’s made the same observation…401K’s had drastically increased the amount of cash into the market since almost all of the contributions are made to mutual funds. I wonder if anyone has done an analysis of this?.
I also remember hearing some people doing the same thing during the last recession of 2002…e.i. withdrawing from their IRA’s to pay bills, etc… According to most financial analysts, people no longer save in the USA because they consider their IRA’s a type of savings account. So it stands to reason that they will take $$ from it in times of need. So the question is, “How much and for how long?”

[Author]

Posts