For most of us, retirement will consist of our ability to draw on many different sources. We’ll use 401(k)s, IRAs, pensions and the stock market. Some of us will rely on Social Security more than we would like and our houses may still play an important role for some as a source of financial security.
Yet it will be the money we invest on our own that will take us to those after-work-years. So we watch the stock markets more so now than we ever have. But what if they were acting irrationally, pricing the shares traded on these exchanges too far into the future? What if business leaders didn’t share the same outlook?
A recent study conducted by the McKinsey & Company among global executives finds that they are much more upbeat about the future than their investors are. “Although economic confidence is clearly shaken, more executives remain positive than negative overall, which likely explains why most expect their companies to continue growing” the report found.
The executives see stability but not stagnation. They believe that their businesses will still grow and with that growth, they see profits. This doesn’t necessarily translate into more jobs, but for those of us who are investing with these companies, the outlook doesn’t seem as grim as the recent sell-off might indicate.
They are however worried about the eurozone. Even Alan Greenspan expressed concern over the condition of Europe’s short-term economic future. When the surveyors asked about the recovery, the world view was portrayed quite differently. In the eurozone, they see the world recovering while the rest of the world believes the outcome of any recovery hinging on the ability of the eurozone to regain some economic strength.
The report found that of the 1832 surveyed over a wide range of industries, countries and functions, “Executives still expect low consumer spending to be the biggest threat to growth, and they are a little more worried.”
So what does this mean for your retirement plan? Long-range the answer is simple. Keep right on investing. This will play itself out at some point and businesses will lead the way. There is however no timeframe on when that leadership will occur. Unfortunately, businesses are quite comfortable with the cash they have on hand, the ratings of their debt and the ability to balance out-per-hour and inventories with some success.
In another survey conducted recently by BlueSteps Peter Altshuler, a Senior Marketing and Creative Strategist commented on the way investors behave. He said: “The markets are never an indicator of economic health….Stocks may have gained, but unemployment has risen, debt has soared, and trade has declined. Unless jobs are created, the cash available for non-essential goods will remain stagnant or become even scarcer, and that will fuel further reductions in employment as margins deteriorate in sectors such as food, healthcare, and other basic industries…the numbers look good but the reality is far more sobering.”
The wildcard is still the consumer and where that consumer will come from is anyone’s best guess at this point. The mere habitual action of regular investing will catch a great many of these companies in relatively good shape. They have weathered the largest part of the storm and done quite well. And even if your portfolio drops in response to recent stock sell-offs, your long-range opportunities to buy a lot of these companies for less is too good to pass up.
In the short-term however, the next five years will be a very volatile time.
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