Skip to main content

View Diary: Bwahahahahahaha! American Airlines and Bain Capital. (282 comments)

Comment Preferences

  •  Next you'll be telling me we'd be better off (0+ / 0-)

    with a 401k like account instead of Social Security.

    401k's are one of the biggest gifts ever given to Wall Street.

    Instead of insulting me maybe you'd like to back up your bravado with some studies. Here's one from the Center for Retirement research that found that defined benefit plans outperformed 401ks:
    http://crr.bc.edu/...

    An analysis of the paper by Motley Fools
    http://www.fool.com/...

    •  Pension plans outperform 401ks for two (0+ / 0-)

      main reasons. First individual investors aren't as good at investing as the actuaries. That's an education issue that can and should be addressed. I'm betting a person with a 401k rather than a pension does better in their other investments outside of those plans.

      Second, defined benefit plans outperform 401ks because there's this huge risk of "default" that lingers. Return is a function of risk in an efficient capital market - you know, the efficient frontier and all of that... Pensions serve the purpose of absorbing small levels of risk, but magnifying large levels of risk. That's not the kind of risk profile we should be wanting for something like retirement funds.

      And I do believe that SS is needed to provide a basic safety net. I just don't think it should be the average person's primary source of retirement income.

      •  Like I said in my original post (0+ / 0-)

        the problem of defaults came about because of the loosening of regulations and oversight on the industry. It was well played strategy. Loosen regulations such that some pensions go belly up, which scares the general public on pensions, then introduce 401K's so you control your own money (but it is really controlled by Wall Street - just check your investment choices in most 401K's).

        As far as investors just needing some education all I can say is that the average fund manager under-performs the market averages so unless you are talking about portfolio management, I have to respectively disagree with your assertion.

        Another point you are missing is that pension fund managers because of the amount of money that they are investing, have a lot more investing tools available to them for guaranteeing better returns.

        It is sad to say, but the average American just doesn't have the time or ability to be knowledgeable enough to invest their retirement money wisely. The 401k's and IRA's just allow more opportunity for investment firms to screw them over with explicit fees and outrageous management fees built into almost every fund they offer.

        There is a reason there are lots of millionaires working on Wall Street.

        •  A few points (1+ / 0-)
          Recommended by:
          According to Fish

          First, it isn't regulations that caused the pension plans to go belly up. There's no way you can expect a pension fund to both grow at a real rate of 5% or whatever and also survive a 60% drop in the stock market. There's just no way that's going to happen. To get a real rate of 5%, you have to invest in equity. Equity is risky. The way to avoid risk is to invest in safer securities with lower returns - money market funds, bonds (which still have some risk), etc. And if you want to make that work so that pension funds can grow to the level needed to fund a retirement, you're going to have to put away a lot more money in them taken out of workers' paychecks. That's just the way it is.

          As for the rest of your comment, I am talking about building a nest egg responsibly. People should know that index funds and diversification is what they should be doing. Invest partly in an S&P index, partly in a bond fund, and put a little bit of international/emerging market funds in there. You can do this with three index funds from Vanguard - where expense ratios are very low. I'm not asking people to become active traders (and for anyone reading this, if you want to trade stocks, here's my advice: do not dabble in it. Either do it professionally, or don't do it). A good strategy isn't all that hard. Just compose a portfolio that looks like this:

          100 - [your age] = S&P index fund percentage
          (100 - [your age]) / 10 = International index fund percentage
          The rest = Bond index fund

          That will get you a long way. Beyond that, it's just little tips and tricks:
           - put your riskier stuff in a ROTH IRA, because returns don't get taxed in a ROTH
           - readjust your percentage (rebalance) annually
           - use 529 plans for your kids' college
           - make sure you're getting your employers' 401k match
           - go through Vanguard - they have the lowest expense ratios (some funds as low as 0.07% per year) because Vanguard is owned by the people investing in its funds

          Anyway, it's not all that hard. The average American can and should be doing this.

          •  Look I understand what you are saying (0+ / 0-)

            in fact, I do exactly what you talk about, but I also know from trying to help others that it is much more than they can handle (or want to handle).

            Let's be serious, the average American can't even manage their day-to-day expenses let alone dealing with retirement.

            The other problem that I haven't mentioned is that 401K's allow folks to choose not to invest in them whereas pensions were usually provided without a decision.

            I sympathize with what you are saying but I also know that 401K's have really not been good for the majority of Americans.

            •  Honestly, (0+ / 0-)

              I have very little patience for people who can't handle really basic concepts. I feel no moral obligation to do anything for people who are struggling because they can't grasp very simple concepts. The capacity for intelligent thought will evolve and devolve in humans. If we want a prosperous future those with devolving intelligence should be free to get themselves into situations where they don't have the resources to reproduce. We shouldn't enable them.

Subscribe or Donate to support Daily Kos.

  • Recommended (177)
  • Community (71)
  • Civil Rights (50)
  • Baltimore (44)
  • Elections (39)
  • Culture (38)
  • Bernie Sanders (36)
  • Economy (33)
  • Texas (32)
  • Law (31)
  • 2016 (28)
  • Labor (27)
  • Environment (27)
  • Hillary Clinton (26)
  • Education (23)
  • Rescued (22)
  • Freddie Gray (21)
  • Politics (21)
  • Barack Obama (21)
  • Media (20)
  • Click here for the mobile view of the site