Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (30) | Ignore Thread Prev | Next
Author: joetangerine Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25235  
Subject: Re: DO NOT let this happen to your 401k! Date: 12/21/2001 12:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
TMFJeanie,

I would agree with you that for most people, especially those nearing retirement or those in retirement, like the guy that lost his $1.3 million in Enron stock, should not have more than 20% in their money in one stock. But that is a general rule that does not fit everyone.

You ask, "Should safety in investing be legislated?

NO! Because, I have not been able to find one person that is for this ridiculous proposed 20% law, that can tell me how we, monitor, control and legislate it without costing a bundle?

What happens if you buy a mutual fund/index fund offered in your 401k that happens to have say 5% of its equity in your company's stock? Does that mean you would have to sell an extra aggregate portion of your company's stock in your 401k, so as to not exceed the 20%? What happens then if the mutual fund/index fund sells all or some of their holdings in your company's stock. Can you then buy that aggregate amount back?

What happens if you buy only 20% of your company's stock and the rest in mutual funds. Then, over a 6 month period your company stock doubles in value while your mutual funds are basically flat or worse losing value. Are you then required to sell off a portion of your stock in the company and reinvest those proceeds in those languishing mutual funds in order to get back down to the 20% rule?

What if the market overreacts to news in my company's industry and clobbers my company along with the rest even though it is fiscally sound and later rebounds? With this 20% law I would not be able to move funds from say a crappy performing mutual fund in order to take advantage of that opportunity to buy extra stock at a low price?!? I would not be able to take advantage of a market driven opportunity because of some 20% rule.

I have asked these questions and no one has given an answer, especially those that are for this proposal.

Once again, good hearted people that see a tragedy take place and want to do something about it, so they want to impose a new law that has ridiculous consequences when trying to enforce that new law.

This new law would be an accounting nightmare. It would drive up the base costs of 401k plans for everyone. Plus, it would continually drive up fees paid by 401k contributors to brokerage firms administering 401k plans.

Keep this in mind....
"With accounts covering 42 million American workers, 401(k) plans now hold nearly $2 trillion in retirement money." (NY Times article)

When the government says they are out to protect my money from myself, the first thing I do is get a firm grip on my pocket book.

tangerine
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (30) | Ignore Thread Prev | Next

Announcements

Post of the Day:
TMFDeej's CAPS Blog

Activist Investors Unlocking Value at LSB Industries?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement