She's an University of Minnesota anthropologist with a new book (see http://www1.umn.edu/news/features/2009/UR_CONTENT_119895.html if you're interested but it's not entirely necessary for the question I want to ask).
She proposed an idea of untangling main street from wall street by removing social safety net programs from the grasp of the bankers/wall street. I don't have one of these 401k or pension plans or various mutual funds, but is there another option? If we assume that wall street is corrupt and if I had to guess I'd say popular sentiment would overwhelmingly support this idea, then do people give their money to these institutions simply because they have no other choice (monopoly)?
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Really? And you're going to say that I take the path of least resistance with my jokes?
ReplyDeleteThe government has made sure that 401ks are tied to Wall Street.
ReplyDelete1) Individuals can write off up to $5000/yr in contributions to 401ks in tax return deductions
2) Businesses that offer 401ks get major tax breaks as well, but I am not familiar with the exact number of dollars.
3) Businesses match contributions by employees up to a certain percentage (this alone tells you how much businesses profit by providing 401ks that they match contributions and still end up making money via tax breaks)
4) Every investment book you read tells you your 401k will grow an average of 7-10% a year (setting up a societal expectation). Considering the modest interest paid for money in a savings account (<0.1%) if people want their money to “work for them” they have to risk it in a mutual fund.
In my conclusion, if an individual enrolls into a company 401k without realizing the risk involved (gambling with companies instead of poker chips) then it is their own fault. They have the option to just save money in money market fund or a savings account but most people want to hit that 7-10% growth each year (greed to some extent). It is a monopoly if you want to join a 401k because your company will not match contributions to a savings account (no tax break there), but individuals do have the choice not to participate.
I have to say, I realized the joke was lame (on your level Steve), but I made myself laugh when I wrote it. Maybe that's what happens when you tell your jokes - they make you laugh and so you decide to share it. If this is the case, then it's a lot like the beginner's mistake of gift-buying where the gift is something you would like and not something the recipient would like (didn't Homer buy Marge a bowling ball in a Simpsons episode?) With all of that said, to this day I buy gifts for people which I'd like to use myself (and in most cases plan to).
ReplyDeleteJarrod: So the game is trust Wall Street or literally lose money? Savings accounts can't even keep pace with inflation, can money market funds?
I can only speak for Fidelity Money Markets. Here is a run down of growth over time.
ReplyDeletePast year: 1.43%
3 years: 3.41%
5 years: 3.35%
10 years: 3.17%
So close to inflation. I forgot to mention there are C.D.s as well. But guess who squandered them? When the Federal Reserve dropped the interest rate to 0% competitive, long term C.D.s went from offering 4-5% to 1-2%.