I just checked my 401(k) statement and it tells me that my yearly rate of return for the year to date is…
-22% (!)
It almost makes me wish I’d blown it all on household electronics.
All those forecasts – “We’ll use the conservative model of 7% growth per year” – aren’t looking all that promising at this point.
I’m taking the advice being sent to me by all those incredibly wealthy folks who run the various brokerages and I’m “staying the course”.
Am I just being foolish? Should I just stop investing in my future and join the majority?
Sometimes I wonder…
I don’t know what a 401(k) is but if it is a pension investment then join the club. I could write loads on what I thnk of the financial services industry but wont. I have just had a “discussion” with one of the “wealthy” folks that run these things about how when the statement says my investment that they are managing has gone down they still take their charges & fees. I should have been warned many years ago when I took out a pension investment and I suggested the fees should be linked directly to the growth. No chance.
Banks have made money too complicated such that even they don’t know what they are buying or investing in. It was interesting to hear an interview with the head of Santander, one of a few currently strong banks, he said that they keep it simple, take money from depositers and lend it to morgagees with no middlemen. They don’t borrow from other banks or trade debt. The phrase we use is “stick to the knitting”
One question all these vast sums our governments are giving to failed banks, where does it come from? Almost every country is in debt, yours hugely so, which country is in credit to lend all this money out?
A 401(k) is like an RRSP only worse. There is a penalty if you try to get at the money earlier than retirement age. There are exceptions, of course but basically the money becomes inaccessible which scares off folks from investing in it.
I agree with your fees-to-growth model. I pay a fee based on my entire portfolio size which could be loosely claimed to be that kind of strategy. But the incentive would be much better if the fee was based solely on the delta. Gee, I wonder why they don’t go for that… 🙂
I once heard an economist from CATO explain exactly what you are asking about who actually owns all this debt that we’re in. It was modestly clear to me at the time but now eludes me.
To miss quote a famous phrase ” there are lies, damn lies and bankers”. The financial industry has made itself so complex how are we as mere mortals supposed to understand it.
Pension investment has always seemed a good idea but in recent years my view has changed. It was explained to me that pensions are gambling on there being sufficient future growth to support the retired. However the demographic is changing in that the percentage of the population that is retired is increasing as the percentage of those in work decreases. Fewer young to support us old folk!!
My understanding was that companies were obligated to have credible reserves to ensure the servicing of their pensioners.
I’m pretty sure that only government was able to create a system that so blatantly disregarded common sense and gambled that the future could always pay for the present recipients.
Any business CFO who tried to do this would be charged with criminal negligence and locked away. Well… at least in theory, practice has shown otherwise, but you get what I mean.
My favorite idea is one that forces folks to save into their own savings accounts which have a selection of options based on risk tolerances. But the money in there is the money you get and you simply cannot get *that* money out – any more than you could get your taxes back. Say 10% of your income. But you can see exactly how much money you have and you can supplement it via 401(k)’s (RRSP’s for the Canucks in the house). Poorer folks would need to be supplemented by the various welfare systems – that doesn’t change. But the wealthier you are, the more you have for your retirement. That’s just fair.
Regarding — financial planners getting paid on your GAIN.
I discussed this issue with the financial planner I use (I hire him on a straight hourly bases for advise with the up-front understanding I won’t buy anything from him, and he is happy with that).
He had several reasons why paying based only on gain COULD become very bad for me the investor.
1. They could put you into very high risk items with the hopes of a big payout, since they have nothing to lose if your investment goes down 90 % instead of 10 % in a bad year. (My advisor 4 years ago said that ABCP was really high risk, not low risk as it was typically advertised, and as such to only put very small amounts (or none) of my portfolio into them.)
2. How would you measure ‘gain’. If you base it only when you realized the gain (i.e. sold the item) then the advisor would put you into short term stuff only, and a balanced portfolio should have both long and short term assets.
If you measure gain on a year over year basis…they could put you into assets (like labour sponsered funds here in Canada) that show a BIG gain the first couple of years, but you are required to hold them for a minimum of years. As of a few years ago, there was not a single labour sponsered fund in Canada where the investors had actually broken even on them as their long term prospects are poor… that is why the government gives you tax incentives to buy them.
3. Tax is another big item. A financial planner worth spending time with (much less giving money to) will consider the money you have after taxes (and all other fees, expenses, etc). If paid only on gain, you will likely be put into higher tax items.
4. Investments don’t go straight up, they fluctuate. In a year where most people have lost 20% of their net worth, wouldn’t an advisor that kept your losses to 10% be worth something? If they are only paid on your gain they wouldn’t get anything.
5. Proper financial planning involves other ‘less tangeble’ things, like risks from lawsuits, divorces, etc. Pay for gain only will be unlikely to give you wise advice on all these sorts of things.
Just some food for thought. (perhaps you are expecting too little from your financial planners).
King
re: which country is in credit
I’m guessing on this response so don’t quote me a factual.
A small percentage of people in the world are very rich, and they are holding more and more of the debt.
I’m not sure exactly how it works, but I”m sure relative trade surplus/deficits enter into this picture. A place like China that exports Billions every month more then they import are likely gaining the amount of debt ownership of other contries.