Who's to Blame for Losses in our Retirement Savings?

Comparing our Q1 2009 financial update with our Q4 2007 Financial update shows a 44% decline in our total retirement savings. Part of the decline was due to withdrawals, but no more than 6%. So who was responsible for the other 38% decline? Of course, I could blame the usual suspects:

1. Government. The crew of Sen. Christopher Dodd (D - CT), Rep. Barney Frank (D - MA), and Treasury Secretary Henry Paulsen were examples of incompetence at its worst. While the other two never gave me any hope, Mr. Paulsen, for a moment, seemed to know what he was doing when he proposed using TARP funds to buy up toxic assets. However, by not executing his original plan, he soon proved incompetent as the rest of the bunch.
   
   Then there was Fed Chair Alan Greenspan, who kept interest rates abnormally low, creating a real estate bubble, and his successor, Ben Bernanke, who didn't recognize the financial crisis until major financial institutions were at risk of failing.



2. Investment banks. Of course, Wall Street greed must be responsible for some of the decline. After all, investment banks created the Collateralized Debt Obligations (CDO) that eventually became the Toxic Assets. For a while, these Toxic Assets were promoted as super safe investments that yielded higher returns
   
   The investment banks took extremely big risks, so big that some companies were destroyed.



3. Mortgage Brokers. With investment banker creating super safe bonds from sub-prime loans, mortgage brokers now had incentive to qualify any and all borrowers. They created the starting material for the CDOs created by investment bankers.
   
   I believe that brokers knew some of the most aggressive loan qualifications were highly at risk of going into default.



4. Financial advisors. I know someone who firmly believes that his financial advisor should have been prescient enough to pull him out of the market. His point was that most of his wealthy friends began going into cash in early 2008 and shouldn't financial professionals have also been wary? As it turns out, he went against his advisor's recommendation and cashed out, missing most of the market decline in 2008.

After looking over the list, I conclude that each of the above has a very small part of the blame, probably less than 15% in total.

The majority of the blame rests with us , because we, and we alone, are responsible for our financial well being. I began to believe that the long term returns of the stock market was worth the risk, and put a larger percentage of our savings into a basket of diversified stocks, instead of keeping a significant portion in CDs, cash equivalents and company stock, as we had done in the past.

In hindsight, we probably should has stayed closer to the investment strategy that enabled us to retire early. We are now moving our retirement savings back towards that strategy.

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This is not financial advice. Please consult a professional advisor.

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