But the feeling of well-being is an illusion and early retirement is a mirage. These same patterns occur across most industries. When the boom is replaced by a bust, the illusion fades and the retirement date recedes back over the horizon. This is not necessarily a case of making bad investments. Rather, it is a failure on the part of individuals to properly evaluate their overall risk and then adequately diversify.
Investors often forget that their biggest single investment and risk is their job.
The income from a job is like the earnings stream from a dividend-paying stock. Since most of people do not have contracts with their employers, their earnings stream becomes vulnerable when the company's prospects diminish. Out of loyalty, financial incentive or confidence in the underlying industry, investors often allocate the lion's share of their retirement assets into the employer's stock or mutual funds representing the same industry. By not considering their employment in the decision-making process, investors tend to expose themselves to more risk than they realize. There is no way to totally avoid stock market risk and at the same time build up retirement assets to a sufficient level.