Here is my latest "Kirt's Cogitation" column entitled "Retiring Your
Retirement Plans?" Your comments are welcome.
Retiring Your Retirement Plans?
is your retirement account these days? According to stories from the Wall Street Journal,
Forbes, and the financial sections of the major news outlets, ever-increasing numbers
of people are finding that the investments made in their 401k and private retirement
accounts are dwindling. As if the very high levels of inflation due to energy cost increases
was not doing enough on its own to devalue the worth of accounts, there is a very strange
propensity for the funds associated with retirement accounts to seemingly always take
a hit whenever the markets rise and fall. For a lot of people, if it were not for matching
funds contributed by employers, they would be seeing net negative growth.
the last many years of participating in company 401k plans, I have seen even the "safe"
investment part of the portfolio barely make any advance. With inflation factored in,
the value is actually less than when my money from a former employer was rolled into
the new one. From what I am hearing, my experience is not unique.
This is by
no means a recent phenomenon. Back in the middle to late 1990s, while working for a
very large aerospace/electronics defense contractor, my 401k actually lost money over
a period of about three years. Remember that was an era when the dot-com companies were
going platinum overnight and everybody was making money hand-over-fist. Well, except
for the retirement plan participants, that is. Again, I was not alone. Only by virtue
of the matching company contributions did many of us make any profit. If you did not
examine your statements carefully, the fact would be easy to miss.
same period, were we being warned of the possible negative effects of stagflation or
even negative inflation. Your money would be worth more tomorrow than it is today. Everything
was smoking along so well that we were actually told that the longstanding business
cycle was dead. I have to admit that I never did quite "get" that argument. It did not
matter after all, because the tech stock market and a good portion of those who were
invested in it came tumbling down beginning in the spring of 2000. My neighbor at the
time, a real estate agent, had purchased a whole lot of AOL stock for his retirement
portfolio earlier in the year, and bragged of how much money he was making on that one
stock alone. About June, his demeanor changed noticeably - probably had something to
do with the tanking of AOL stock.
For the rest of 2000 and into 2001, we were
served story after story of people coming out of early retirement to return to work.
Concurrently, the $10 per hour burger flipper jobs that employers could not fill were
being taken with people glad to get $7 per hour pay. I think I have told the story of
the owner of the music store where Melanie buys her violin supplies, where the proprietor
claims to have lost more than $100,000 (yep, that's five zeros) on RFMD stock alone,
and had been on the verge of retirement until the bubble burst. The euphoria was relatively
short-lived, but at least people had learned a good lesson. Right?
the pundits kept selling the same bill of goods about how over the long term, the stock
market always makes money. They brought out charts of the DOW with arrows pointing to
gains made over 30-years periods and labels showing why now is the time to buy, buy,
buy. What they fail to point out, of course, is that the theory holds true mainly if
you were able to invest a huge lump of money at the beginning of the 30-year period.
That, of course, is the period when most people are earning the least they ever will
earn and subsequently have the least available for investment. In later years, when
there will be less time remaining to realize any gains, the implications of short-term
market fluctuations can - and have been - deadly.
Largely at the encouragement
of, and through the manipulation of the government, the majority of people have been
convinced (or coerced) to be spenders and/or investors in the markets rather than savers
- that is if they have the ability and are inclined to make monetary investments in
the future. That makes nearly everyone a "global player" because their fortunes are
tied directly to the performance of stock values in the marketplace. I am old enough
to remember a time when most of the people I worked with never even mentioned the stock
market, and certainly did not worry about whether it was going up or down. The overall
savings rate for Americans in 2006 was -1%, which means people are spending more than
they make. Still, anyone caught up in the savings & loan debacle in the 1980s is
aware of how even savings are not a guarantee of financial security. At least with that,
depositors eventually got their money back - often on the backs of taxpayer-funded bailouts.
There is nobody or no institution to bail out the people who have and/or are losing
wealth in stock market based retirement programs.
It seems, however, that many
of the corporations are being quietly aided in back-handed ways by the world banks.
Look at the current situation with the sub-prime, and marginal qualification mortgage
lenders and related activities. Shareholders are losing their shirts, while methods
are being put in place to provide relief to the institutions themselves (and of course
their heads). Who knows where that money is coming from? A lot is funneled via creative
accounting from the Federal Reserve and many never-to-be-discovered sources. With the
initial crisis last fall, we heard news of the high-risk lending policies being halted,
and the companies being blamed for predatory practices (sure would not want to blame
the dunderheaded borrowers), and we just assumed that would spell the end of it. Ha!
Just three weeks ago we sold our house to an unmarried couple who were able to borrow
not only the full purchase price of the house, but additional money to cover closing
costs and even have a couple thou in their pockets after settlement. The lender's name:
Bank of America - sound familiar? I guarantee there were plenty of people with retirement
portfolios filled with BoA stocks.
Am I alone in suspecting that there is some
intentional manipulation of retirement investment funds? How can it be that so many
retirement funds are performing so dismally, while there are obviously many investors
actually making good money? Do the investment companies assign retirement accounts to
their lowest-performing employees as the last act before putting them out on the street?
Can it really be as simple as professional incompetence, or is something more devious
at work here? I suspect that somewhere along the way, retirement accounts have become
the dumping ground for the poor investing of fund management businesses. They know that
most participants are now watching closely, either out of ignorance or empathy. After
all, by now nobody really expects much from the markets, right? Even if people do catch
on, what can they really do about it? There has to be a lot of financial institution
boardroom backslapping going on around the world.
How about you? Is your retirement
plan suffering? Please post your comments.
- Kirt Blattenberger
RF Cafe Progenitor & Webmaster