Friday, April 17, 2009

Decade of Losses Forces Investors in their 30s to Start Over

This sounds so very familiar - the 401(k) has been exposed as a poorly constructed vehicle that essentially is a conduit for the top 10 mutual fund families to lock up your money in the "only choice in town". As long as the market is going up 8 out of 10 years we're all happy campers. But in a normal market similar to what we experienced most of the past century ex 1983 to 1999, not so much. [Oct 7, 2008: 2000s Stock Market Worse than 1930s] [Mar 26, 2008 - WSJ: Stocks Tarnished by Lost Decade]

This story from Bloomberg is my demographic and just as some of these folks realize, I feel rather than contributing to these poor mutual funds [Feb 5, 2009: Mutual Funds Have Tough Decade]I would of been better off just spending the money like my less responsible peers... at least it would of been fun! But on the plus side Fidelity, T Rowe Price, Vanguard, and a handful of others have created mounds of wealth for their owners from this system. (Did I just kill my future job opportunities with their firms?) It's too bad we did not convert Social Security to stocks (if only I could of been a fly on the wall for that lobbying effort by the financial firms) we'd have ruined the older generations hopes too! Oh wait... we have an empty lock box called "Social Security" instead. Well, I digress...
  • Jason Woodward has barely broken even after dutifully pumping money into his 401(k) retirement account for about 10 years. “I may be a little bit ahead, but not much,” said Woodward, 39, an employee of United Construction & Engineering Inc. in Torrington, Connecticut.
  • He’s better off than many 401(k) investors in their 30s who began saving a decade ago. A median- income worker who put 9 percent of salary into an all-stock plan would have finished the decade ended March 31 with almost $10,000 less than he or she invested, a loss of 26 percent, the center found. With investments divided equally between stocks and bonds, the drop would have been 3.9 percent. (and at that age we are told to be almost all in stocks - I mean in the long run you can never lose!) [Oct 27, 2008: Japan's Lost Quarter Century]
  • Kevin Sale, 32, still puts at least 80 percent of his retirement contributions into stocks, a practice he’s followed since starting his career in the late 1990s. “I would have done as well holding cash,” said Sale, a financial planner in Bloomington, Minnesota. “You can’t deny the truth.”
  • Dan Greenhaus, a 31-year-old equity analyst for Miller Tabak & Co., a New York-based brokerage, said his generation of investors has experienced two bear markets -- one starting in 2000 and now the current recession -- and could start investing less aggressively. “Some segment of the population is going to scale back exposure to stocks,” he said. (Fool us once? Fool us twice? How many times will it take to figure out how Robin Hood works in the US? And when Robin Hood is mortally injured what happens? Ah yes we send our tax dollars in to save him. It would seem absurd fiction if someone told us this story)
  • Investors in their 30s were too young to build their retirement accounts in the rising stock market of the 1980s and 1990s. Over those two decades, the Standard & Poor’s 500 Index climbed an average of 18 percent a year, including reinvested dividends, according to data compiled by Bloomberg. (i.e. the years almost every mutual fund manager was sheer genius) In the 2000s through March 31, the benchmark fell 4.7 percent annually.
  • U.S. Representative George Miller, a California Democrat, held a hearing in February to highlight what he described as the shortcomings of 401(k) plans. Miller, chairman of the House Education and Labor Committee, called the plans “little more than a high-stakes crapshoot.” (I like to call them just another reverse Robin Hood plan - steal from the middle to give to the politically connected but hey, high stakes crapshoot works for me)
  • “With a start like that, it is going to take young people a long time to accumulate meaningful balances,” Boston College’s Munnell said. (I'd say - the whole promise was you'd generate a money very early in working life, and then it compound like mad during ages 55-70 - not for our generation)
  • What is the alternative?” she asked. “Are you going to not save at all and rely on Social Security? People don’t really have a choice.”
  • U.S. 401(k) plans held $2.7 trillion as of Sept. 30, a decline of 10 percent from the end of 2007, according to the Investment Company Institute, a Washington-based mutual-fund industry group.
$2.7 Trillion x oh... about 1.5% fees each year for the industry = thank you lobbyists for mana from heaven. Gravy train.

Well at least we have the employer match!
  • The recession has caused employers such as Coca-Cola Bottling Co., FedEx Corp. and General Motors Corp. to stop making such payments.

Well at least the older folk and unions have pensions! [Mar 4, 2009: Bloomberg - Hidden Pension Fiasco May Foment $1 Trillion Bailout] [Apr 1, 2009: Pension benefit Guaranty Insurance Fund Made Huge Switch into Stocks Last Summer]


Well at least we have Social Security! [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]


Well at least we have our 0-1% savings rate over most of the past decade! [Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?]


Well at least we have a Federal Reserve that can continue to print more and more money out of thin air to create a sense of wealth for all of us? While those politically connected have benefited by this massive transfer of wealth and fees, and ran off with our real wealth!

*Crickets chirping*

*Crickets chirping*

I knew there was a solution! Boo Yah.

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