Are investors too optimistic?

Ever since the financial meltdown, and throughout this recession, people keep asking us if we're optimistic about the future.

Conversations reveal that people are less optimistic then they had been, but want to be more optimistic and are looking for some outside reinforcement.

A lot of research has been done about optimism and the impact it can have on people's lives (read Dan Ariely & The Curious Paradox Of `Optimism Bias’).

Researchers have found that when people judge their chances of experiencing a good outcome–getting a great job, having a successful marriage, or financial security–they estimate their odds to be higher than average. And when they contemplate the probability that something bad will befall them (a heart attack, a divorce, a parking ticket), they estimate their odds to be lower than those of other people.

We usually ask when doing a 401(k) seminar the following questions:

1. How many people feel they will accumulate the nest egg they need to support their desired retirement lifestyle? – usually more 50% feel they can.
2. How many people know how much money they will need at retirement or know where they stand today in relation to their goal? – of course, most do not know, and when pressed to guess how they stand today, they acknowledge they're probably behind and will have to work longer then they anticipated.

This can be a huge problem:

• chances of hitting your target nest egg when you don't know what that amount is, is extremely low
• not knowing where you stand in relation to wealth accumulation, can cause errors in the investment decisions you make

Both have the consequence of hurting your chances for the retirement at a time and in a manner of your choosing.

Oh, and are we optimistic about the future–extemely. Lot's of money has been lost (and lots of money has not been gained) by betting against (or not investing in) America.

For this reason, we've created an extremely low cost investment advisory service – the 401(k) Optimizer program to help you know how much you will need and how you should monitor and invest your 401(k) to reach the retirement security you've earned. Contact us if you need some information.