To stay on the topic of retirement plans does anyone else worry that I'm the only one in my company who asked to see the prospectus of the mutual funds that are available in our new 401K plan? The company eventually sent out a link to everyone so everyone could read them but if it weren't for me continually asking it would have never happened. I'm certain I will be the only one who actually reads it and contemplates how each investment fits with my retirement goals.
This should worry everybody whether you are invested in the stock market or not? Why? Because I believe this will have really bad consequences down the road for the entire U.S. population. The government decided to make people responsible for their own retirement by allowing IRA and 401k plans. This moved employers from Defined Benefit plans (pensions) to a Defined Contribution plan. The problem was that they didn't teach anybody about investing. You can legislate a plan, but if you don't teach people how to use it becomes a very dangerous weapon. The forced people to invest but they didn't teach anybody to become investors. Don't people see the problem with this?
I liken it to playing basketball. I love basketball. I feel totally comfortable playing with people who know how to play the game. However, any idiot can lace up a pair of sneakers and call himself a "player" but that doesn't mean he actually knows what he is doing. The problem in playing in games like this is that people get hurt. These "players" don't have good body control and don't know what they are doing so they just run into people. The chance of injury skyrockets when these types of players are on the floor.
The same can be said with these retirement plans. People have been blindly told to invest in the plan, save for retirement, etc. but not really taught how to do it. As a perfect example of this, during the 401K meeting an older worker complained about how her portfolio was losing a lot of money. All I could think to myself was, "Why on earth are you in investments that have high volatility?" What happens if the stock market crashes and doesn't recover for 10 more years. It has happened before and it will happen again. What happens to these people? The investment strategies they preach are good if you have a LONG investment horizon (even then there are problems but I won't get into that).
I was further dismayed when I asked during the meeting about moving into a money market account. Everyone at the meeting looked at me like I was crazy. Why would he invest in a money market account? Doesn't he know he needs to be in stocks? There is no return in a Money Market. I can easily say that I was probably the most financially astute person in that room. I know perfectly well why I wanted to be in a money market fund and how it fits into my overall strategy. Nobody else in that room knows my personal situation, financial goals, or my investment strategy yet they are willing to blindly believe I have no idea what I'm doing. This coming from a group of people who have no interest in reading about where they are putting the money that will supposedly secure their future and wouldn't understand what they read even if they did. This is not an indictment on these people. The government created this problem by mandating a program and then not teaching people how to properly use it.
All these people playing a game they have no idea how to play. It's dangerous. It's dangerous for everyone.