Finance and Economics > The Money Board

401(k)s will be considered unthinkable 50 years from now

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Smurf Hunter:

--- Quote from: Mr. Bill on April 04, 2019, 01:52:20 PM ---Someone is going to misunderstand what I'm about to write, and assume I'm suggesting socialist wealth distribution.  I'm not suggesting a solution, I'm just pointing out a really difficult issue.

Half of people are of below-median intelligence.

In addition, half of people (regardless of their innate intelligence) reach age 18 having received a below-median education.

Combining those two, we have a very large fraction of the population who lack the ability to understand investments.  They're not currently able to deal with "dividend strategies, bond holdings, international investments, option trades", and for many this cannot be fixed by hard work and study.  These are the people most vulnerable to following bad advice from predatory so-called experts.

I don't have a solution to propose.

--- End quote ---

That's not socialist.  That's an astute observation.

I looked up the rate on 10 year US treasury notes over the past 50+ years. 

There was a huge stretch of time where you could almost guarantee 5% or better.  There was also a time when my parents were young, that a savings account paid close to double digit interest.

Today there are few (none?) investment vehicles that guarantee any reasonable rate of return. 

In any case, Tim still has to opt into the boiler plate basket option.

surfivor:

Here’s what I noticed .. Dave Ramsey says go with a financial adviser that he recommends. I guess there is a website for that but I hadn’t found it. What about just using Charles Schwab? I have a schwab account and it looks like you can do investing right through their website. Otherwise I have to make an in person visit to the bank or to someone’s office

Dave Ramsey clearly says put your money into a 401k plan. My sense is that not everyone follows all of his advice on that type of thing ?

Jack actually has some kind of finance guy that is constantly managing his money. If there is a market change this guy may call him on the phone and tell him he is selling the investments and going to cash holdings. That doesn’t seem typical or it sounds like it may cost a good deal extra to have someone like that ?

David in MN:

--- Quote from: Smurf Hunter on April 04, 2019, 02:37:28 PM ---Today there are few (none?) investment vehicles that guarantee any reasonable rate of return. 

In any case, Tim still has to opt into the boiler plate basket option.

--- End quote ---

Well nothing is guaranteed but I've owned the Zweig Total Return Fund (ZTR) for a while and it's currently paying a 12% dividend. It's not all that hard to find a 5-10% dividend paying stock or trust in industries like timber or retirement housing. I do these things because I manage my retirement myself. It's not that hard but you need to know what you're doing.

And I do sympathize with Tim. He's not diversified, not getting a dividend income, not following any sort of strategy, doesn't know what a call is. We could debate growth versus value or charts versus dividends but he's not getting any of those. At best he's getting a basket of low risk relative to age as assessed by Morningstar. Tim might  be a brilliant doctor, lawyer, or engineer but he's just not passionate about money. If I'm blunt my wife, a brilliant engineer, is lost in the world of finance.

And remember these are the well to do. The true poor among us don't get retirement funds and it's a real sales pitch to Steve (who we just made up and is broke) that Tim at least gets a 4% match from his employer.

When you realize the "winners" in our society are blindly picking investment funds they don't understand... It's doomed to fail.

Smurf Hunter:
You can debate pre-tax vs post-tax just like 9mm vs .45acp.  That all said, within the pre-tax sphere, a 401K gives you a much large annual contribution limit compared to a traditional IRA.  IIRC in 2019 401K max is $19,000, traditional IRA is $6000. You NEED an employer with a 401k plan, else you are limited to < 1/3 of the money you can save tax deferred.

I think coupling this benefit with specific forms of employment is precarious over the long term.

iam4liberty:

--- Quote from: David in MN on April 05, 2019, 08:48:41 AM ---Well nothing is guaranteed but I've owned the Zweig Total Return Fund (ZTR) for a while and it's currently paying a 12% dividend. It's not all that hard to find a 5-10% dividend paying stock or trust in industries like timber or retirement housing. I do these things because I manage my retirement myself. It's not that hard but you need to know what you're doing.

--- End quote ---

I have virtus (new name for ZTR) in portfolio too.  It has been a good choice.

Harry Browne was a friend of mine and I use his system.  It is very easy.  You divide your investments into two piles, permanent and speculative.  The permanent portion is highly diversified to weather the different types of economic conditions.  It grows at 5%+ per year on average and virtually never has a large correction (e.g. 2008 saw a decline of only 0.7%). All this can be done by investing in a handful of ETFs. The second speculative portion is where you put your picks for high growth.  This can be the Dave Ramsey simple growth stocks+real estate formula or more individual picks based on knowledge. Currently i have a mix of growth mutual funds, cyber-security, robotics, and gaming.

All this can be wrapped in a tax advantage account (I use both traditional and roth IRAs to the limit) hosted by a low cost provider (Vanguard is awesome), and set for automatic contributions.  I like to have the contributions added to a cash settlement account and then use that money annually to rebalance the portions of the permanent portfolio.

Again, none of this is tough to understand except for the financial and legal lingo. It is purposefully obtuse IMO.

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