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Will Dems doom 401(k)s?
Just a few months ago, analysts say the idea of scrapping 401(k)s in favor of a government-run pension plan would have seemed ludicrous. But now in the midst of troubling economic times, support for the system is gaining traction.
House Democrats recently heard testimony on the idea and, under a potential Obama administration, would likely move to put it in place. Democrats want to seize the money that workers currently invest in their 401(k) plans and replace the popular retirement savings accounts with a one-size-fits-all government sponsored retirement account. Under the scheme, Americans would be forced to transfer all of their hard earned retirement savings from their 401(k) to the government.
The basics of the proposed nationalized retirement system (also known as a Guaranteed Retirement Account) are outlined here. But judging from the government’s track record of managing numerous other big programs, doesn’t this have disaster written all over it?
back to top74 Comments to “Will Dems doom 401(k)s?”
So if I understand the ABC article correctly, the truly contentious issue is one of eliminating the pre-tax behavior of 401Ks.
But please hsow me where this is in Obama’s proposals?
And interesting approach: the cuontry trended towards 401Ks as an alternatvie to defined benefit pension plans as the late 80s and 90s progressed.
And when the stock market went up, it looked like a winnner.
Now that it is going down, people are apparently having seocnd thoughts.
But if one considers this more closely, what is really needed is economic stability and a growing economy. Without the present collapse, we would not be discussing this seriously at all.
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“”What people want from their pensions is guaranteed income for life,” Ghilarducci said in an interview Monday.”
What’s the operative word there? Guarantee.
There are no guarantees in life. We know in NJ how government-run pension plans are faring. Not well. As I recall, there is no real money actually sitting in the Social Security trust funds. They use it for other stuff.
I’m not going to endorse this. What is happening now is a once-in-a-lifetime event. All these knee-jerk reactions looking to the government for a solution when the real problem is how we run our lives and spend money will come back to haunt us. The credit card problem is about to hit, too. People are already having their credit cards cut off and rates raised.
Pay them down, pay them off. Save. Buy real estate!
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Its not in his proposal’s the quote simply means under his administration, it would get passed.
Basically, Dems wanna take your 401k. Once again, taking and controlling all your money. Which means youll never see it again.
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I am not a socialist. But if you want to find who might have done a good job of making people think seriously about a new government-mandated retirement system, drop by a few Wall Street Investment banks.
The words “take responsibility” perhaps apply to poor and middle-class people who try to buy more house than they can afford well-enough. But for a lot of people at the top of the investment-banking conservative ideology complex, “Creative Destruction” means other people’s retirement accounts as you bump to the ground in your Golden Parachute.
This is class war week at worldmagblog.
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Wasn’t this what Social Security was suppose to be? You take my hard earned money and give it back to me when I need it. The reason people have 401(K)’s is because they don’t think SS will be there for them and they don’t trust the government with their money.
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Well, for once, I can find something to “agree” about with Random. He’s right about how the investment bankers didn’t care about everybody else, just themselves. They’re even putting money aside from what we’ve given them in the bailout for bonuses, many of which are OVER $100,000. What does that newscaster say: “It’s YOUR money!” Nevertheless, the government can’t guarantee anything either. It will always be dependent on tax money. So let’s say there’s not only an economic crisis, but the world starts to turn to a cinder (assuming global warming really kicks in
) and assume all sorts of calamities, including war, etc.
People here always complain about Christians putting their faith in something they can’t see, but to put your faith in the federal government, when you have ample proof before your eyes of what they are capable of doing to us all, makes even LESS sense that putting it in the hands of God. At least as Christians we know that God isn’t out to steal from us.
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The plan is interesting, first because it links payments with benefits. This is quite different than present Social Security, and so represents a movement towards the ideas advanced under privatization schemes.
Second, this seems to be in line with a general reconsideration of defined contribution plans, and a subtle shift to defined benefit. The financial collapse of the past month has exposed the risk in those plans, a risk not well appreciated I might add. Generally, if all the eggs are in one basket (defined benefit, defined contribution) there are a set of risks that occur. Optimal outcomes require both.
Third, far too many people do not set aside money at all. Mandatory contributions in fact addresses this situation (and reduces the impact of underfunded retirment later).
Fourth, even with 401ks, those who invest may also invest in tax-paying accounts. We do. It is hard to see how the mandatory accounts alters this behavior, though removal of certain tax advantages could change the type of securities one invests in.
Lastly, there is a draw back. I have found that T=the fifty percent payback on sudden death is the part that has troubled others the most.
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NJLawyer post 2,
I am unsure what you mean by social security trust fund balance but the following:
http://home.netcom.com/~rdavis2/ssfund.html
seems to suggest that there is a balance of perhaps $1.7T, or did I misread the materials.
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thorn post 3,
ah so it would not be Obama pushing it but a democratic congress?
so it would be pushed no matter who becomes president?
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kbells post 5,
actually we have 401Ks because companies did not want to provide defined benefit plans and moved to defined contirbution plans.
I believe you will find that IRAs are the non-company pre-tax retirement plans.
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Harris p[ost 7,
an excellent insightful post!
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Once again, as Dick Armey said we see the phrase “social responsibility” being used to describe something more accurately defined as “personal irresponsibility”.
Give up my 401K?
To paraphrase Moses the Gun Guy: ” From my cold dead fingers, Barack.”
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Pensions are not in most folks future. Yes, at one time we had businesses who offered them. That was back in the day when American-made vehicles were the undisputed sales kings. Inelastic demand meant continual sales.
But things changed in a globalized economy. I understand the US Fed govt actually has an agency called the Pension Guarantee Benefit Corporation.
And guess what? It’s broke too.
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The article I read about this push said something about it effectively ending employer matching funds. Most of us contribute mainly for that reason. If the contributions are strictly voluntary with no matching funds most of us would quit contributing.
I’m not a fan of this idea of giving the government my money so they can manage it AT ALL. There are several programs in place now that are extremely convincing that this is a VERY BAD IDEA.
If I were talking to a Congress-person who was proposing this to me, I’d have to ask him/her “Do you want me to dope slap you now, or later?”
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Larry Burkett warned us about the government taking our 401K pension saving plans from us.
One way to handle this is to take the money out, pay the taxes and penalties and keep your own money. If you take into account your employer’s contributions, you might still come out ahead. That money was not yours, instead, think of it as your employer paying the taxes on your savings.
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MIM — my two experiences with company contributions has not been that hot. The storied 1:1 matching, uhm no. Once it was 15%, the other nada. Swell.
As to the management, these would be in inflation adjusted T-bills basically, as I understand it. So relatively passive as to trading. For comparison, the 3 percent real return is comparable to the floor on the TIAA-CREF funds. Iow, mismanagement does not seem to immediately be the problem.
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This comes off as a government fix it program that in 20 years will need fixing of its own.
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Year’ ago, I read somewhere that our government would resort to the seizure of 401K’s and pension plans to save social security. This is confiscation of private property, although it would be democratically blessed by a populace who trades a bit of financial freedom for lifelong security. I wonder what happens to undistributed benefits after my demise. Maybe the 10% penalty of cashing in now is less costly than this government run program.
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Harris,
Promises, promises – I don’t trust a congress as far as I can throw ‘em.
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It just keeps getting worse and worse. This is like living in a bad movie.
And I thought the government already had a forced “guaranteed” retirement account. It’s called Social Security. And isn’t that an interesting name. “Social” (as in socialism) and “Security” (as if anything fiscally controlled by the gov’t is “secure”). From now on, I’m insisting that everyone use the more correct terminology of “Socialized Insecurity.”
They currently seize around 13% of my salary (since I’m so joyous classified as “self-employed” by this same entity). Now they may get to “seize” even more.
House Democrats recently heard testimony on the idea and, under a potential Obama administration, would likely move to put it in place.
Another reason to listen to my momma, don’t vote for Obama!
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Social Security was supposed to be government pension. Employees, along with company matching funds, are forced to pay 12.4% of salary and it is still not enough. Why is this government program going to perform better? How long before government decides it needs the funds to balance the budget and pay off debt? It is naive to think that these funds are safer…maybe less volatile but not safer. If this is forced on me, I will save after taxes so that I won’t become a ward of the state.
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BTW, if you look a demographics and actuarial charts from the 1930’s, the dirty little secret about Soc Sec. is that payouts would be well below receipts because people usually died before eligibility.
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What about transferring the 401(K) money to an IRA? Would that work? Or is the gov’t going to raid IRAs as well?
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If the new administration and/or congress wants more money—duh—they’ll find a way to take it. When they’ve gutted the economic engine of the world by driving the remaining money out of this country before it can be seized, then we’ll understand what they mean by ‘Change’. Then the only truly ’safe harbor’ method of saving for yourself will be hard assets you can protect and use in the black market. People, gleefully declared to be cranks, have been saying this for years.
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The socialist left, especially Marxists like Obama, have always hated 401k’s because they are private and are not controlled by government – meaning them. 401 k’s are capitalism and socialists see capitalism as the worst thing on earth, besides Bush, conservatives and Christians.
If Obama is elected, they will do their best to take away any privatized retirement system and replace it with a failed and bankrupt one like social security. Your 401 k may have lost money in this last economic downturn but you should have realized this was going to happen after you elected socialists to control the economy 2 years ago. At least your 401k is not bankrupt like social security.
Their safe, if bankrupt system, only allows you to make a maximum of 2-3% a year, less than inflation because your elected socialists will take what you put in, steal it, and spend it on something else you do not want and leave an IOU for 2-3% interest that is you retiremet plan. It will be nothing more than a failed promise like social security.
Even after this latest setback, 401ki’s have returned 4 times what SS has over their lifetime. Socialists just want to control your entire lives saying only they can protect you from yourself. Pay no attention to them – if you have any sense left. They want to make you their poor broke slaves totally dependent on them. If you want to be live like Cubans, Chinese, Venezuelans and old soviets, then eat the slop they will swill your way. I personnally prefer better fare I can easily provide myself adn know that I am not being poisoned.
They are turning you all into fearful, mindless little piggies who do not care what slop they are forced to eat. Your get scared and then they take over your life because you don’t trust yourself and think that they will look after your best interest instead. This is what they always do. Have you ever noticed that socialists can never gain political power when economic times are good? Why is that? Because you aren’t such woossies then and so easily fooled by folks who have no intention of looking out for you – they will only look out for themselves. Fear, pride and ego will kill you every time.
You are about to be real dead. Never trust a lefty with life or money unless you want to be dead broke or just plain dead.
They destroyed this country during the great depression and it took a work war to get it almost back to 50% of what it once was. But then they just turned it into crap slowly until Jimmy Carter finally was the last straw and you tossed these failed whack jobs out of office for what we hoped was once and for all. How soon you forget.
Now you are abouyt toi enslave youselves again. What scared little piggies you are. Perhaps you don’t deserve to save yourselves?
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Here is a Political Cartoon that says allot about how Congress feels about the working man and woman.
http://www.cnsnews.com/public/cartoons/cartoonstrip.aspx?v=e46UqG8zaG
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I am going to run a test and see what would return more SS or a private retirrement plan that invested in the US S&P mutual fund only since I started putting money into SS. I will get back to you.
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Llama — better check out the proposal. It’s not for SS, but one that mandates investment in basically treasuries. It’s a mandated savings plan over which people would have real legal claim (and limited rights of inheritance). It also would mandate contributions from employers, in that it could be framed as a tax of sorts.
Benefits of savings are two fold: less social pressure as people retire, and increased savings rate now (helps economy).
What this does is tax advantage the base of the economic pyramid. In your 401k, it’s taxing the conservative T-bill/bond side of things but not your mutual funds. it’s a hybrid.
As noted above, there are some questions in the plan as currently discussed. But long term, it actually offers a step away from the SS box, where we pay benefits out of current receipts. Remember, under the proposed plan, you would be vested from day one.
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On taxes, [he] claims to be a champion of the working class because he wants to cut taxes only in the lower tax brackets, rather than across the board. He makes his case with liberal-even Marxist-terminology, complaining about the “class warfare” waged by the “haves” against the “have-nots.”…
…On Social Security, [he] wants to use income-tax revenues to shore up the faltering system. In that, he goes beyond even Franklin D. Roosevelt…
-Bob Jones on John McCain in World Magazine
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Here’s a quote I read about Obama’s tax plan which will affect what you earn in your retirement account:
When I wrote about an article I read about the Democrats effectively eliminating matching funds, it must have been another article I read….
This one is specifically about Obamas capital gains tax increase – which still affects your retirement account.
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In re: 9
Probably, but I dont see McCain approving it. He’d most likely veto it, which means they might not bother in the first place. Obama administration would pass it, along with anything else led by a Dem Congress, especially if they have a majority to override any filabusters.
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Merle Haggard for Congress
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Here’s what an article over on HotAir says about it:
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#30 MIM “He [BHO] says he’s aiming at “fat cats” who make above $250,000.”
Have you that heard this $250,000 is just a number they’ve made up? From various BO and JB statements, this figure has ranged from $250,000 down to $150,000 with a couple of random stops along the way. It seems obvious that, if they need money for whatever reason, anybody who has money could be made to pay.
The fact is that the government isn’t going to give anyone anything unless they take it from someone else first.
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I’d also actually like to see the 10 yr for 401k’s. I imagine its not in the negative.
I do know the ING fixed 457/401 deferred comp fund that is offered here still has a 10 yr of 5.4% The YTD is like 1%. I imagine its built on the same principle as 401k’s. Correct me if I’m wrong and if anyone has the 10 yr for 401k’s that would be nice to post.
My 4 funds, are still showing a 10 yr of over 5%, 8%, and 9% respectively. Thats with YTD’s of -40% to 50% percents.
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In other words, I think the government is playing on the negativity and assumptions in order to find another excuse to take our money…
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I just posted another link (which is stuck in the Spam filter once again) from HotAir that summed up my objections to this plan. It should show up a little later.
But I notice Warren Buffet is against this plan too. He’s pretty much saying we oughta be buying right now because stocks are low.
I’ll post the link next from US News and World Report since I’d like this to actually post and maybe the link will show up later.
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Here’s the link to the US NEWs and World Report article.
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From barackobama.com:
Families with incomes below $250,000 will continue to pay the same capital gains rates they pay today
…New capital gains rate of 20% for those over $250,000 is one-third less than it was under Ronald Reagan. Equivalent to lowest rate in the 1990’s.
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#35 Thorn,
Yep. that’s my take on it too. I don’t need those stinkin’ crooks in Congress taking any more of my money. It’s gotten bad enough that I’m liable to do violence to the thief with his hand on my wallet. Like I said, they’d best not come face to face with me, because I’ll call ‘em every kind of fool there is, and then dope slap ‘em.
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Arcadia,
If you’re raising the capital gains tax rate 5%, you’re raising the tax rate. Equivalent to lowest rate in the 90’s? Hooray, it’s higher?
You can celebrate it, but I won’t.
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It also doesn’t seem to be clear that the new capital gains tax only affects those who make over $250K per year. Is it clearly specified that your income is what affects the rate? What’s the rate it’s taxed at if I make $245K per year?
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#35 Thorn
That’s always been the case unless they play the greed card, sometimes viewed as the ‘poor me’ card, or card of envy. BO has worn this one out using it as the foundation of his entire campaign.
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MIM: The language in italics was a quote. So, yes.
Here’s the link, hope I can type it right.
http://www.barackobama.com/pdf/taxes/FactSheet_Tax_Plan_FINAL.pdf
It’s six pages, widely spaced and easy to read.
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#28 Harris,
I checked p0out the proposal 10 days ago when it was first floated as a trial balloon by socialists. This program is in addition to the big Social Security ripoff of the American herd that they scared to death.
Hear is a hint. If a Socialist is proposing it, they are going to rip off everyone but especially the evil and hated rich. They want to confiscate, READ STEAL, Americans 401k’s and force you put it onto a government retirement program that will pay you 2% a year. This is highway robbery and theft of the highest order by thieves of the highest order. My 401k that has averaged more than a 9.5% gain each year since I started it 1981 on the money I have put into it. This does not include the company contribution that was another 25% of my investment that also grew at 9.5%.
Once the socialists get you 401k money they will steal it and leave you a worthless IOU like they did with Social Security. Don’t believe a word they say. When our elected officials opt themselves out of their taxpayer funded private retirement plans to back into SS and this latest of their insane thoughts you will know that they have all completed their electroshock treatments.
Why would anyone believe anything these idiots say when their previous thoughts have put the country into $11 trillion of real dollar debt and SS and Medicare have $70 Trillion in unfunded obligations.
These people are insane and need to be treated as such.
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Sorry Arcadia,
Like Obama’s common sense that web page cannot be found.
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Those spaces must be so wide that the only thing you can read is the space between the lines.
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OK my test is complete. I used my teacher wife as the guinea pig instead of myself since she is closer to the average American when it comes to income. She is 55 years old and started putting money into SS in 1970 when she had a part time job in college.
If she works for another 7.5 years and retires at 62.5 years of age she will get $17,380 a year from SS. Social security is also famous for not keeping up with inflation either with average increases per year of mush less than 3%.
If my wife would have put the money into a S&P 500 mutual fund in a private retirement account like our elected officials do and opted out of SS like they do, she could retire today at 55, 7.5 years early, start taking out immediately (50% more than SS will pay her 7.5 years later) $26,070 a year, increasing 3% a year, live to be 100 years old and still leave $135,678 ($36,958 in current inflation adjust dollars) to her heirs. Try leaving your social security to your heirs. My sister in law died when she was 56 and even though she had paid into SS her whole working life, SS paid out an insulting death benefit of $250 and kept the rest of her payments to them like the thieves they are.
Anyone who want to give their freedom of investing for their own retirement in a 401k for this socialist nonsense is certainly willing to do so but they would be oh so stupid – as usual.
They can also pay more in taxes of they want any time they want too. They don’t need a change in the laws to be stupid about that – all they have to do is write out a check.
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So here is a cut and paste of the link:
http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf
Looks like there was a typo of a capital S.
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#48 LLAMA
That’s pretty good. Did you take into account the current state of the S&P? And will the current crisis affect those numbers going forward do you think? I’m just wondering if that is a problem for alot of people right now, and how you think that problem might be averted….
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#48 You’re a very smart llama. Did you do all that in your head, or can your hooves work a calculator?
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I still like the idea of the Fair Tax. Taxes must be collected, but taxing success (income and investments) seems crazy. Why not tax spending? That would encourage saving, rather than fleeing the country.
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Don’t pay any attention to what lefties say. All they do is lie. The cut off for the top 5% of American wage earners AIG in 2006 was $153,542. So when Obama says only the top 5% will see their taxes increase , he means that everyone over $150,000 in income (like Biden said the other day) will get a tax increase – not everyone over $250,000. If lefties ever told the truth they could never get elected. Here are some more of their lies.
Obama said he only wants to raise tax rates for the top 5% of wage earners back to where they before the Bush tax cuts. Well the top 5% paid $615 billion in taxes in 2006 so their increase would be $18.45 Billion. He said he would give this stolen money from the rich to the remaining poor 95% – or 129 million households. So these poor households would get the huge tax cut of $144 each. Never mind that 44 million of these households pay no income taxes now. 32% if the poorest American households pay no taxes. Want to guess what percent of them are socialist democrat whack jobs? You do not want to know and Obama won’t ever tell you. But he will tell you…
Obama says that these poor Americans pay no taxes now but they do pay Social Security and Medicare taxes. This is not completely true since they do not all have jobs but what Obama is saying is that he wants to extend welfare to cover the poor in social security and medicare costs too. This is pretty cheeky to say the least. It took us forever to get these people off welfare not to put them back on it. In reality, many of the 44 million households that do not pay income taxes already have their entire SS and Medicare payments refunded to them – thanks to the Bush cuts that included a huge earned income tax credit for low income households. So in reality, the 44 million poorest income American families pay not income tax, pay no SS tax and pay no Medicare tax right now. So what Obama wants to do is have us pay even more in welfare for these poor Americans.
Obama says the Bush tax cuts were for the rich. A whopping lie again. The people who got the largest tax break as a percent of taxes they previously paid, their tax rate or the total they paid was by far the poorest of Americans. Bush even created a new 10% tax rate that never existed before the lowest had been 15%. So the poorest Americans got a 33% tax cut but the richest only got an 8.5% tax cut.
If Obama is going to give the tax increase on the rich to the poor, who is going to pay for his trillion dollars in extra spending, the lefts 1.5 trillion dollar deficit or the their 500 billion dollar deficit this year. The democrats have been spending money they do not have the last 2 years like drunken sailors and they make the Republican spendthrifts look like pikers.
I say Obama is much worse than average socialist – he is a Marxist and he does not like anyone who is not as poor as the welfare receiving people who will vote for him en mass. He is buying this election in more ways than one. The left has long forgotten the democratic principle that the vast majority’s greatest duty is to protect the rights of the minority.
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What do they do in Europe? I wonder if that’s where the idea is coming from?
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Musing, you don’t really think the money is actually there, do you?
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As with medical care, there are many difficult problems involved in providing for people’s retirements. The general tendency to fling around insults and labels is not helpful to problem solving.
Capitalism has many virtues, but there are many problems involved and embedded in it.
One of the problems is that in a free enterprise economy there are going to be people who thrive at the game of making money and some who do not. Some of those who thrive do so reasonably honestly and fairly; some do so by being scoundrels. Bill Gates and Warren Buffet are examples of they former; they play rough but they probably don’t cheat or rip off. Our capitalist economy is also full of scoundrels; the so-called “smartest people in the room” at Enron, the head of Worldcom, and so on. It’s a little old, but here is a brief survey from BBC:
http://news.bbc.co.uk/1/hi/business/2066962.stm
Along with the cheaters, are the greedy gougers.
Broken Securities Industry Still Has $20 Billion to Pay Bonuses
By Christine Harper and Serena Saitto
Oct. 27 (Bloomberg) — Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVann0.cv9Tw
Is this evil? No. (No more so than gay civil unions, for example.)
Here’s the problem. Implicit in a successful capitalist society is a kind of social contract, where the captains of industry and the worker bees all benefit from the rising tide to a reasonable degree, and all suffer in a reasonable way when the tide runs out.
When the average person sees a retirement account decimated, a home losing its value, jobs disappearing like soap bubbles and observes financial manipulators collecting millions in salary and bonuses as their banks collapse around them (and then rush to the capitalist piggy bank welfare trought) the social contract breaks down class war erupts. If you don’t like Obama’s so-called “socialism” (which is really social welfare-ism), the behavior of top management of the investment banks throws gasoline on the fire of class warfare.
About a week ago I posted an analogy about how poor whites in the sSouth were swindled by raceism to support the upper classes of their time and place.
I don’t know the solution to our economic mess, but many people here, most of whom are hard-working middle-class people, are falling prey to something similar. As I’ve noted, the rhetoric at this web site by conservatives against liberals is similar to the rhetoric of racism. We need a leader who can start to bring everybody back to feeling they are “on the same team.” The rhetoric of both candidates is dividing the wedge further in.
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#50 DJ,
Since we do not know where the S&P will end up this year, I knocked 30 points off the the 30 year S & P average yearly returns. This amounted to 1% a year over my wife’s 30 odd years of being forced to contribute to the SS nightmare.
It is not so much as averting something that has already happened, too late for that, but t isn’t anything to worry about either – if you are not going to retire in 3 years. Every loss like these since WW 2 has been recovered in 3 years time and the market has gone one to huge gains in just 12 months.
But it doesn’t hurt to tell folks the common sense ground rules used in Llamadom when it comes to investing the low risk way.
Never believe what most claim are the rules. These are all very wrong and if the last year doesn’t prove it to you then you are hopeless.
Invest for the long haul. Put it in and let it ride until you retire. What nonsense. This will make you a 10% yearly return over 45 years and huge losses over smaller time frames. The Dow closed at 784 in 1974 and 1984. If you invested in it and let it ride you would have had dead money for 10 years. Never invest for the long haul. A buy and hold strategy just lost you 40% – don’t be a putz. Set real rules for you and your financial advisor that are easy to always follow. Just make sure you do.
If you invest in something and lose 5% – get out. If you have lost 10% from the high in any investment – get out. Invest in something else.
Another lie is to diversify. Nonsense. Your diversification just lost you 40% across the board and more in 1973, 1987, and 2001. Find out what is working and invest in it instead. In the past year being short is the only answer to making money in the market so be willing to go short when the market is going down. Llamas never have more than 4 investments and 4 hedges for these investment.
If you ever take a large position either long or short in any investment, make sure you hedge you bet by taking the opposite side in the options market to make sure that you never ever lose any money when investing and reduce your investment risk to zero. Remember, if you are taking any risk at all you are doing something very, very wrong – so stop taking risk right now. The worst thing that should ever happen to you is to be even on any investment or a very tiny loss.
Never invest in mutual funds. They are the most stupid investment known to man, pushed by whack jobs too, and you can’t hedge them to reduce your risk to zero. So avoid them at your peril – I’m sure you what that is right? The more risk the more potential for ma huge unintended consequence, as well as, the potential for more reward – they just forget to tell you the first part. Llamas prefer to take no risk while maximizing potential profits – regardless if the markets are going up or down.
Follow the 20 day moving average with all of your investments. If the price of your investment is moving lower and crosses the 20 day moving average – sell it immediately. You may want to short it if of it has come off a large move higher. Never go long in any investment until the price of the investment is moving up and crosses the 20 day moving average. Never violate these two rules – no not ever.
If you follow these two rules and hedge your position with calls and appropriate puts in the option market as the case may need, you will reduce your risk to zero – and be forced to make piles of money if you have picked your 4 investments wisely.
Never ever bet against the Fed. Never bet against momentum in the market. All equities have two things in common. They go up and down in price and they are effected by momentum. If a stock is going up – it wants to continue to rise and if the price is going down – it wants to continue to go down. This is momentum. Don’t ever bet against it. Use it to your advantage instead by usingg the 20 day moving aver to know when to buy adn and sell all longs and shorts.
If you follow these rules, you would have increased your net worth by a factor of 4 in the past 12 months or so like llamas did – and always do. Keep your head, follow the rules and get filthy rich instead so whacks jobs will hate you more than they already do. Their hate is your reward
Just think how you would feel instead if your 4 investments the last 12 months were in EEV and SKF calls and UYG and EEM puts.
You can do it too by following the rules and never breaking them. When you get good like llamas, you can skip the hedge and just =bet the options based on the 20 day moving average.
You now know everything Zahorchack wrote about in his 1974 Harvard thesis called the Art of Low Risk Investing as updated and improved on by a flea bitten Llama. Niow put it to godd use like all llamas do.
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#51 MOMOF5,
Yeah, I was so smart I was a National Merit Honor Scholarship winner, flunked out of college ended up doing two tours in Nam and driving a truck for 2 years after getting off active duty – before going back to college 25, doing better and finally graduating in the top 10 of my class. But there were only 100 of us left in an original class of 300 Architects. I felt good about it anyway since I was starting with a year and a half of 1.58 GPA as a handicap. Sadly, I never became one though
Who else but a llama would go to a 5 year professional program in Architecture and survive to not ever want to be one? Maybe I will do that in my retirement.
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So what do you do now Llama? Besides play the stock market?
I looked at my Fidelity fund again (FFFEX) just now and I’m just sick that I didn’t take action back when I spoke to you. I could have at least pulled out of it and put it into cash reserves, instead I rode it all the way to the bottom, and just the last 4 days it’s started back up. I’ve lost nearly 30% since I first started with this thing. And about half of that was after I wrote to you about a month ago… Fund Managers – PAH!
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MIM,
Your FFFEX case is the perfect example of using the 20 day moving average for your advantage. The 20n day moving average crossed the price daily price as it was going down in October 07. This was the first of many sell signs at $17.5, then another sell in January 08 at $17, then another sell in May o8 at 15.5 and again the first of September at $14. It closed at $10.36 yesterday. Be thankful you only lost 30% you could have easily lost from near $18 to $10 – way more than 30%. But you could have lost nothing of consequence if you knew the basics like you do now.
Since there is no hedge for puts and calls on Mutual funds your only choice was to go to cash in Oct of 2007 and stay there since all markets were tanking after that date until just recently this week. You could be getting back in soon in at around 11, but with much more cash in had to exploit this vastly oversold market.
But ditch the 401 k that only has poor performing Mutual Funds as choices. You can transfer this money to a self directed traditional Roth IRA at no cost or penalty and be able to invest in EFT’s and their counterpart options to reduce your risk and ramp up your profits.
Since I retired, I went back to managing our family closed in off shore investment trust TALRI (The Art of Risk Investment) that we originally set up in 1970 and moved off shore for tax reasons in 1991. My twin brother didn’t like it but he doesn’t own the controlling interest like I do
I already have folks asking if I am going to stay retired this time or not. One will soon come up with something interesting for me to do and I will go do it and turn TALKARI back over to my twin and he will be happy again. Nothing like a twin scorned. 56 is still too young an age to retire at. TALARI is fun to do every day but you can hardly call it work.
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Sorry MIM,
No Roth is allowed since you didn’t pay taxes on the money in your 401 k yet. You will have to roll it into a traditional IRA instead at no cost, penalty or feee adn let it multiply tax free instead.
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KBells at #5: The reason people have 401(K)’s is because they don’t think SS will be there for them and they don’t trust the government with their money.
Well, no. The reason people have 401(k)s is because Social Security benefits are minimal subsistence, and the government created the 401(k) program in the first place as a sop to big business. Most companies don’t offer pensions anymore. They have 401(k) programs so you can save “your own money” in the ever-risky market, and hope that when you’re ready to retire the market’s on a upswing.
What’s happened lately should show the danger in that. If you had $500,000 in your 401(k) a year ago and were in the process of retiring, only to find that you suddenly have only $300,000 to last you the 20 or 30 years you expect to live in retirement, it’s suddenly not such a good deal.
You guys can blather on about “socialism” all you like, but I’d be much more comfortable having my life’s savings in a plan that I can count on is not going to suddenly lose me half my value just when I am about to need it.
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SYTEVEG,
The Market this last year has been absolutely fantastic. I made more money in the last month than I did in all of 2001 as the Nasdaq crashed in the Chinton dot com bust. I though 2001 was a once in a lifetime invrestment Nirvana but I was as wrong about this as you are about 401k’s. In 3 years when the Dow gets back to its al time highs you will be proven wrong as you always are. I personally hope all lefties stay out of the market forever. They deserve to be miserable and broke. They are woosies and scardicats and no one needs to associate with that trash. They just give everyone an illness with all their pessimistic bad vibes based on insanity and stupiity. Now if we can get rid of them in politics the world would finally be right.
It is you that blather and slop swill. We eat better fare than your slop. But you are welcome to what we won’t swallow out of Christian charity
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#61 SteveG
“You guys can blather on about “socialism” all you like, but I’d be much more comfortable having my life’s savings in a plan that I can count on is not going to suddenly lose me half my value just when I am about to need it.”
You’re right SteveG, Like when my father retired at 60 as a school principal making $24,000 a year and when he died at 86 a school principal made $120,000. His COLA raises got him up to $40,000 a year. What saved him was that his house was paid for.
Somehow, I don’t think his State Teachers Retirement System pension was much better than a 401K.
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“I though 2001 was a once in a lifetime invrestment Nirvana but I was as wrong”
This means we should vote for McCain, right? We want to be wrong like you.
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Bob and Llama: The problems with 401(k)s are:
1. They ask all of us to make investment decisions, something that most of us are not very good at.
2. They require us to make long term plans without knowing how the market will behave. It is true that over a long period of time the accounts will gain. But it is also true that a big drop just as you’re about to need the money can kill you.
3. The existence of the programs makes it easier for companies to justify no longer offering pensions, which pretty much forces us all to take part in the 401(k) whether we’re comfortable with it or not.
They’re good for investment firms, and they’re good for companies trying to avoid providing for employee retirement. They’re bad for communities (having a transportable retirement fund makes it easier for employees to move from job to job, place to place) and bad for individual workers.
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No one answered my question from before: Does anyone know if IRAs will be affected by this legislation?
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TJ,
Read the links I provided in 30, 33, and 38, and that’s all the answer I can give you. Be aware that one of those links is talking about Obama’s tax plan, and not this plan to deep six your 401(k).
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SteveG,
It is not a companies responsibility to provide retirement for anyone – period. You are responsible for providing your own retirement like you are everything else in the world you need and want. Only socialists think someone owes them a retirement – or anything else.
Anyone within 5 years of retirement that has their portfolio in all stocks is nuts according to the experts. The rule of thumb is 80 less your age is what percent you have in stocks the rest is in bonds and money market accounts. Since this money is only for retirement and there are huge penalties for taking it out beforehand, when you need it is when you retire. Anyone needing the money this year when they retired would be 80 minus 64 is 16% in stocks with the rest on bonds and MM. If they were stupidly invested otherwise they deserve to loss it all. They are responsible for their risky actions. Only lefties blame someone else for their own stupidity.
The world asks you to make decisions about things you know little about all the time. The idea is to know that you are ignorant and educate yourself enough to where you are not dangerous. If you are stupid and can’t there are millions of financial ad visors who can for you. Any private investment book will give you a set of fairly decent rules for novice investors, but here is a rough one. Stocks – 30% large cap Dow, 30% Nasdaq 100, 10% international Large Cap, 10% Emerging Markets, 10% Mid Cap US and 10% small cap US. Bonds 50% intermediate corporate investment grade, 20% High yield, 20% Treasuries and 10% Money Market. See how easy it is – even you can do it. This will make you 10% over 45 years and if you put $88 a week into it from the time you are 21 you will retire a millionaire 45 years from now – in today’s money and be able to take out at least 4% a year in today’s money each year, live to be hundred and leave a million dollars to your heirs. It is the easiest thing in the world.
Employee freedom to move from job to job and anywhere in the country without any restrictions is what America is all about and a wonderful thing. I have lived and worked in Russia, China, Saudi Arabia, Denver twice Richmond, Phoenix, California 3 times and traveled on work all over the world and the USA. It has been fantastic and I highly recommend it to everyone.
Retirement plans are for the employee and not for anyone else with the possible exception that companies with a pension or 401k have a better chance of attracting better employees that are best for them.
It is your ideas that make you ….eeerrr….different than folks who are happy, optimistic and wealthy. You are what you are but your brain is clouded and your outlook skewed in ways that are detrimental. There are problems with 401ks but none of them are what you mention. The problem with 401ks is that they are too restrictive and need additional features to make tham better like self direction and options.
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“1. They ask all of us to make investment decisions, something that most of us are not very good at.”
I’m willing to bet the avg person is better than the avg politician
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“It is not a companies responsibility to provide retirement for anyone – period. You are responsible for providing your own retirement like you are everything else in the world you need and want. Only socialists think someone owes them a retirement – or anything else.”
Thats an interesting point Llama. The society is quite consumed with the “right to retire at 65″. Such a shame if people actually have to work their whole life. You know, like the olden days.
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#71 Thorn,
Yep, If you want to retire at 65 then you better plan for it and do what it takes to do it rather than blame everyone else for you talking instead of doing.
Retiring at 65 is easy. Doing so at 35,45 and 55 is much harder since the risks are much greater and you need way more money in hand to do it
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Llama: Only socialists think someone owes them a retirement – or anything else.
Are you capable of arguing anything without using the words “socialist” or “Marxist?”
Didn’t think so.
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Anyone who doesn’t vote for politicians that want to cut spending, deserves what they get.
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