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Plan Well, Retire Well

Saving and investing your money

Higher Gas Prices and Staying the Course with Your Investment Plan


Higher prices for gasoline, energy for heating, food and other goods essentially imply the income of consumers will not have as much purchasing power as it did previously. An article today in the Wall Street Journal Online (http://online.wsj.com/article/SB120541096748933255.html) reports on how higher prices and the weakening economic situation, including a high level of new jobless claims and weak asset prices in the housing market and in the stock market, have led to cut-backs by consumers in their retail spending. Drops in consumer spending in the month of February were highest in the building and supply stores (0.7%) and furniture stores (0.5%) and autos (1.9%).

 

For the average small investor (I am talking about people like me who are making contributions to an IRA or to their 401(k) or 403(b) plan as the major part of their savings and investment plan) what will be the impact of price increases such as these? From empirical research on retirement behaviors, we know that factors such as real income and assets held do influence the level of employee contributions to retirement plans. We would expect some people to reduce their contributions as their monthly budgets become tighter. How will we behave in this instance, with higher prices affecting our budgets? Keeping on course with contributions, through the shocks and bumps in the economic road, is part of asuccessful long-run investment strategy.



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