Friday, October 17, 2008

The World's Most Time Consuming Get Rich Quick Scheme

From the liberal website Alternet comes this story about how 401(k)'s are a contemporary get-rich-quick scheme. And to think, all this time I though get-rich-quick schemes were ways to put money in my pocket tomorrow. No wonder I haven't been able to come up with any good ones. I should have been scheming about how to put money in my pocket in 40 years.

All jokes aside, as many commentators have noted, long-term investment strategies are still your best bet with your money. Yes, the market has ups and downs, but the purpose of long-term investment is supposed to be long-term return and I don't believe there's ever been a long term period in the nation's history where you'd have been better off having your money in a savings account, treasury bonds, or under your mattress. Now obviously, it sucks if this is literally the moment you were looking to pull your money out, but thems the breaks. Just be patient.

What's interesting is the author's utter lack of a real alternative. Employer pension plans are obviously a disaster, as anyone familiar with the big American automakers knows. And social security? Please. I'll avoid delving into that pyramid scheme unless anyone really wants to get into it.


Anonymous rose said...

Christ that is the dumbest shit I've ever read. A 401K is a retirement account that people should be funding as soon as they can. If you begin funding when you're 30 and stop at 55 and withdraw at 65, the money that you put in there will have been compounding for an average of about 23 years.

Can someone whip out a chart of the Dow Jones or SP 500 for this lady and ask her to identify any 23 year period in history where the stock market was a bad place to be?

The market has been godawful recently. But let's take a looksee at where it was 23 years ago in 1985. Ok the Dow was at 1,200 and currently resides at a lowly 9,000, after touching 14K last October.

Even at today's depressed prices that's a 9.5% average rate of return.

If you were in a CD earning 5% a year you would have about 1/3 the money today as you would have if you went with the stock market instead.

3 times as much money in a 23 year period. Period.

Libs don't care much for facts and numbers and other confusing things.

12:23 PM  
Anonymous rose said...

How do you write that kind of article with out once mentioning the trade off between volatility and returns. In a defined benefit plan the company is taking on the volalility of the market and therefore will reap the extra long term returns.

But these are long-term plans. Why not let the retiree be exposed to volatility in order to reap the benefits of great returns. Higher volatility yes, but while volatility provides risk to the short-term investor, it is merely noise to any long-term holder.

In a defined benefit plan the retiree is essentially paying to reduce volatility, even though volatility is a non-issue in the long-term aka retirement.

What an awful, yet typical piece. How do these people get paid to write?

12:31 PM  
Blogger lonely libertarian said...

You get a lot of stupid ideas and stupid writing on economics and money on some of these liberal sites, but some of what you get is so dumb it just needs to be pointed out. There are some topics about which reasonable people can disagree and then there's utter nonsense like this.

1:49 PM  

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