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

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  •  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.

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