Thursday, October 15, 2009

Lining the litterbox with Time

I promised my doctor that I would keep my blood pressure in check, yet Time Magazine continues to get those numbers well above the 120 over 80 requirement.

In the most recent edition, Time suggests it's time to eliminate the 401(k) plan and instead, re-institute pension funds from corporations. The writer is Stephen Gandel, who apparently is not certain what direction to go. Please let me explain.

While Time is entitled to their opinion and Mr. Gandel entitled to his own, it seems to me that once your opinion is formulated and you've spent, oh, I don't know, twenty years or so writing about financial issues, you should have a pretty clear idea of where you stand.

Apparently Mr. Gandel has difficulty in that arena.

You see, he writes in the most recent article that the 401(k) has been a debacle, serving no one and simply creating fatter paychecks for executives. He attempts to site a simulation run by T. Rowe Price as an example of searching for an optimum portfolio, but doesn't give any clear indication of the results other than a fancy "most of the time the market goes up slightly. But some years - KAPOW - stocks and bonds do spectacularly poorly." Big word there, Mr. Gandel.

Especially coming from a guy that only three years ago suggested that 401(k) contributions were the smartest thing an individual consumer could make. That's right. Our beloved Gandel wrote that it would be wise to "contribute as much to your 401(k) that the employer will match." In short, he summarized a 401(k) contribution as a smart thing to do in an interview with http://www.first30days.com/

If you'd like to read his jibberish or need proof, please click here:

http://www.first30days.com/smart-investing/articles/stephen-gandel-on-smart-investing.html

Please also note that he thinks sometimes we need to "trick people into investing." Lucky for us he's writing for Time, eh?

No, Mr. Gandel. The answer is the same as it's always been. Small, regular contributions to a self-directed retirement account, with most of the contributions going toward stocks and growth while one is young, and then gently moving toward bonds and money markets as one gets closer to retirement is the best bet. Always. Prove otherwise if you don't agree.

A simple rule of thumb to follow is put your age into bonds (as a perecentage.) For example, I am 40 in December (ouch) and should have 40% of my retirement contribution going toward bonds funds and others 'safe' investments. No more than 10% of my portfolio should have my company's stock in it, by the way.

I ask each of you to call Time (their email is down) and ask them to begin behaving like a real magazine rather than allowing some journalistic hack like Stephen Gandel change his spots "Time and Time" again. Pun intended.

1 comment:

Anonymous said...

Professor Ola,

While pensions were at one time the norm, and 401Ks were designed to supplement these retirement vehicles, globalization changed all that. We can not expect American companies to 'foot the bill' of retirement for their employees while their foreign counterparts do not. Saddling them with this burden will place them at an even greater cost disadvantage than they already face in the international market space. No, 401Ks are CRITICAL to the financial well being of American's and should not be infringed upon in any way. Government must not 're-distribute' the wealth of those careful enough to plan ahead to those who were not, neither should they regulate where and how investments should be made. Our 'entitlement' culture is of great concern to those of us that work and teach internationally, and I applaude your voice of reason and common sense on the subject.

Sincerely,
Eric Sartell
Professor of Economics
Whitworth University
Spokane, WA