Felix Salmon on why people invest in stocks:
My feeling is that people like to invest in stocks because they like knowing that there's a chance that the stock market will solve all their financial problems when it rises. Think of it as a three-pronged strategy: buy a house, invest in stocks, and work hard. Any one of these three things can pay off with lots of money at retirement, in the way that investing in TIPS won't.
What's more, an entire generation of Americans started working and saving and buying a house in the early 1970s -- and millions of them hit the trifecta, becoming successful in their careers even as their stocks rose and the value of their real-estate soared. I doubt that particular combination is going to happen again in the U.S., but the experience of that generation is so powerful as to give a lot of people a lot of hope. Even if that hope isn't particularly rational.
If you're saving a little bit in the expectation that your 401(k) will boom, your house will appreciate, and Social Security will support you, you may well end up in big trouble. Modern retirement planning should probably focus more on putting away an unreasonably large chunk of your income.
We want to hear what you think about this article. Submit a letter to the editor or write to firstname.lastname@example.org.