I have this book on order from my local library, ISBN 0738206350.Has anyone read it?Read under the heading of "from the publisher" here to get the flavor:http://shop.barnesandnoble.com/booksearch/isbninquiry.asp?isbn=0738206350&btob=Y&BT=Ykmote
Hello kmote. In regards to the book, no I haven't, but Scott Burns of the Dallas News, discused it about a month ago in his column, see:http://www.dallasnews.com/business/scottburns/columns/2002/stories/051402dnbusburns.1ffe4.html You may have to register, or you can select "register later" to get to the story. My opinion is that 401k plan participants, and most investors in general, are their own worst enemy. I've seen a few scholars use the term "behavioral finance", crudly described by myself as the study of allowing ones emotions rule our investing decisions. Kahneman & Tversky I believe originated the theory, and Eugene Fama and William Bernstein, among others. have further researched and studied it. Anyway, investor's emotions seem to put them, and take them out of investments at the very worst time - after their investment has tanked, and after the other has had its runup. Pretty interesting reading if you can find some reading on the theory. Anyway, Enjoy the article from Scott Burns, who does seem to have a Foolish sense about him.Bookm
I have not read the book, but the points made in the publishers blurb are not particularly new. 401Ks are mostly of value because they are convenient and easy and they offer some tax incentives. They are a much better program when you buy investments in them that always go up. When investments crash from time to time, it gets frightening--and then its easy to blame others--including the Congress.The biggest problem with 401Ks is that the funds in them--even when you invest successfully--are all (or nearly all) taxable when removed. That means for most of us, its after tax value will be reduced by about 30%. That's a pretty hefty hit in retirement. They are also subject to estate taxes--unless repealed.Still those who feel Social Security will be inadequate, and who lack solid pension benefits (or convert them to IRAs), 401Ks are a great way to prepare for retirement. Congress seems to be telling the middle class you must learn enough about investing to fund your own retirement. Unfortunately, along the way you are potential victims to all sorts of sharks on Wall Street. Some needs to scream Jaws every once in a while.
Hoax?In my 401k, I have a large choice of investments, I get to put money in tax exempt, and I can trade without incurring taxes on the gains. There's even the matching money to consider.Okay, so I have to actually put money into the 401k, but if I were investing on the outside, I'd have to put money in that as well. Sure, having a 401k won't make you a multimillionaire in fifteen years by itself (for most people). But calling the 401k a hoax is like saying that the automobile is a hoax--it doesn't take you where you want to go effortlessly...you have to learn to drive it; plus you have to put gasoline in it, and you have to pay for the auto and the gas YOURSELF!
TheBreeze,I have been a member of my 401(k) since July 1992 prior to this,the retirement plan had strictly been a profit sharing plan in whichno employee contribution was allowed. The employer during the good years was puting 15% more in to all of our futures and for the most partwas doing a very good job investing in safe instruments.All the good returns ended when the owner decided he wanted to pursueother interests and in July 1997 he turned it over to Merrill Lynch.We only can pick from MBBAX, MBFGX, MBSPX, MBLOX, MBHQX, MBFSX, MLRAX,MIFBX mutual funds. From reading all the material Motley Fool has tooffer regarding choosing a good mutual fund, not many meet the criteriaand the fees seem high. We have asked for Index funds and get nowhere.The company now only puts in 5% whether or not employees contribute. I am just at a point, because of the less than stellar returns that these funds have given, where I stop the deductions pay the tax now(Fed and State) (my 15% bracket) and invest the money in DRIP plans like the one I have started with iStar Financial Inc. (SFI), where 100% of my money goes into the stock with no fees. From the looks of there dividend I should double my money in three years. And there are other companies like that out there that I would love to own. Doing this would give me additional diversification and really have the chance to build wealth. The funds can stay where they are and languish along. Seems sound to me. I will read the book first, nonetheless.Kmote
There is an article by the author in the June issue of Bloomberg Personal Finance Magazine. I have not read nor will I read the book after reading the article. The basis of the book seems to be that despite th bull market of the 90s, most people are not any better off in terms of accumulkating wealth for retirement savings. While the author uses a study by an NYU economist by the name of Wolf, i forget his first name, the author also suggests that we would have all been better off using Defined Benefit plans. This may be true, the investments in defined benefit plans are controlled by the employer or Trustees of the plan. The particpants do not put any of their own money in, and do not choose the investments. They are also guaranteed a benfit in retirement, should their company outlive them. Just ask any former Studebaker employee what happened to ther pension. Also, in ord to receive the optimum benefit under a DB plan you have to work for the same employer for over 20 years in ost cases. This hardly happens anymore. Most of us will have worked for over 8 employers by the tome we retire, and depending on the industry you are in it could be higher. 8 is the conservative average. Just add up the number of companies you have worked for since getting out of school.Let's remember here that there is not a law that makes it mandatory for companies to offer a pension plan of any kind. DBs requrie the company to contribute each and every year based on actuarial calculations to provide the benefit being offered. 401ks are either all employee money, or a mix of employee and employer money. It is less expensive for the employer. If 401ks go away because they are labled a hox, Employers will not rush to set up DBs. They just won't offer anything. 401ks allow us to save our own money, control our own investments, and take that accumulated money with us wherever we choose to continue our career without losing any of the savings. To call it a Hoax is flat out wrong. This book seems to be released at time to have the mximum effect in the wke of the Enron mess. Another Chicken Little crying that the sky is falling. If these people want the guaranteed benefit without controlling the investments, stop contributing to your 401k forego any company match and place your money in a fixed annuity. Just my opinion.W401kBill
Hello kmote. If you're that unsatisfied with your 401k (and I really can't blame you with what you have to pick from), why not research another retirement vehicle, an IRA. Look into whether or not your tax situation qualifies you to contribute to either a Roth or Traditional IRA. You can open one with which ever brokerage/fund company you choose, and pick the funds you want, not those that were selected for you. You can allow your money to accumulate untaxed during your career, and not pay taxes on dividends distributed annually (well, quarterly).And since you mentioned individual stocks, I'm sure you're well aware of the dedication it takes to properly research and maintain a diversified portfolio of stocks. And another question comes to mind - how many individual equities does it take to make a portfolio diversified. That all depends on who you ask, it would seem. Some numbers I've heard mentioned are anywhere from 5 to 30 individual securities. And their level of diversification will also depend on their size, valuation and market sector, for starters. An interesting viewpoint is that of William Bernstein in this article:http://www.efficientfrontier.com/ef/900/15st.htmInvesting in index funds in a 401k or an IRA is a very simple way to build a secure retirement. If the last few years has taught us anything it should be that stock investing is not as simple as just picking from the multitude of growth stocks out there and riding them to millionaire status. If you have the time, knowledge and the luck (yes, it does play a role with stock selecting) to find a dozen or so quality stocks, that may be your strategy, but there is something to be said for keeping it simple. So, if you haven't already, take a look at the Fool's Retirement Area (where All About IRA's is included) to see if an IRA may work for you. Here's the link:http://www.fool.com/retirement.htm?ref=LNHTHBookm
In my 401k, I have a large choice of investments, I get to put money in tax exemptI hate it when I get the urge to be anal and point something out...but I just have to give in to the urge this time. The money you put into your 401(k) is not tax exempt. It is tax exempt in the year of the contribution, but you will pay taxes on that money eventually...so it is really only tax deferred. Just a minor detail, but it can be quite important some years down the road.ACME
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