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Originally Posted by gales0678
Rnadall - correct me if i am wrong , but, i think the savings rate in this country is based on after tax dollars - so it is not including payroll deductions into 401k's and 403'bs and standard ira's. If we added those figures in the number would probably increase greatly. Back in the 50's and 60's the savings rate was high because people didn't have te ability to put in pre-tax dollars into mutal funds, they just put $ into the bank. The savings rate also does not include capital gains - so if you bought 100 sahres of exxon and paid $50 a shrare and now it is at $75 a share you are wealthier by 50 % on that $, but, that does not show up in the savings #'s published by the gov't.
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Personal savings rate is based on disposable income, so yes your after tax income is basically subtracted from everything you consume...The end result is the savings rate.
You aren't wrong on stocks but realize that investing in the stock market isn't saving. The idea that stocks go up indefinitely is simply wrong. That's why buy and hold is a fallacy. Those who invested in Cisco in 2000 may get even in 2012 if they are lucky. Also consider that as the value of the dollar gets debased, you need to make a higher % stock gain to offset the decreasing currency. But if you are lucky enough to make money in the market---- most people end up spending their paper gains in stock. Heck, if your stocks are up 10 grand, you feel comfortable to spend 5 grand on a vacation. Meanwhile you haven't sold a thing or saved anything. The only years with a negative savings rate since '32 and '33 were 2005 and 2006. Part of this is unquestionably the wealth effect which in '05 made people spend based on the increased value of their homes. But as home prices have started to decline, you can't cash out on your home anymore and those with ARMs as loans are really feeling the pinch.
I guess my point here is that rainy days do happen. So a negative savings rate is really rolling the dice.