In the most recent economic boondoggle, 401(k)s lost trillions of dollars as they were predominantly invested in the stock market. Were those losses shared by any of the Wall Street concerns or the Fed? That answer would be a resounding no.
The baby boomers have been sold a massive bill of goods. This started back in grammar school and continued right through college. This myth was based upon certain principles that were geared to reward conformity and ultimately punish any pursuit outside the realm of the status quo. While this indoctrination was not transparent or even evident, it has clearly surfaced today and is being unashamedly enacted upon the coming youth.
The principles of financial conformity are as follows:
- Tax deferral is always best. (This was a big lie.)
- Maxing out qualified retirement plans is your best move. (This was a white lie.)
- Diversifying your portfolio with mutual funds is wise. (This was a fee grab lie.)
- Keeping your money in the market is always best. (This was a commission grab lie.)
- Use leverage with low interest rates. (This was a banking manipulation lie.)
While some of these financial thoughts are reasonably good ideas, it has proven true that all financial strategies change over time and that the changing of the times makes history and past trends meaningless. New pioneers are always seeking ways to improve financial returns and to create a new cycle in the free market enterprise system. When that system is artificially controlled by government intrusion, it puts the balance of order well out of whack.
Today the “fool’s gold” is the belief that the stock market is an even-balanced game that can help individuals create wealth. It isn’t even close; it is simply a modicum for institutions (banks, hedge funds, equity funds, etc.) to make huge profits while playing a totally fixed game. Wall Street continues to play a zero-sum game while passing all risk onto the individual investor. Look, the longer you try to beat the house in a fixed game, the more you lose. Of course they have to allow you a few wins in order to keep you coming back for more pain.
But I digress; the purpose of this article is to focus on the most dangerous scenario presently facing your retirement and your clients’ retirement. If you are one of the many who have monies in an ERISA-based retirement plan (401(k)s, IRAs, HR10, Keoghs, etc.), then you are sitting on a ticking time-bomb which the government fully plans to explode on you. How, you ask? In the most recent economic boondoggle, 401(k)s lost trillions of dollars as they were predominantly invested in the stock market. Were those losses shared by any of the Wall Street concerns or the Fed? That answer would be a resounding no.
Take a look at an excerpt from a 2009 U.S. News and World Report piece, Would Obama, Dems Kill 401(k) Plans?:House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created “guaranteed retirement accounts” for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return.The 2014 budget proposal presented by the Obama administration included a mandatory IRA for small businesses. This is exactly what the Ghilarducci plan included. So get ready for the government to take control of ERISA plans, just as they have on health insurance plans.
In fact, I dare say that the PPACA law was the precursor to see how the American public would slowly accept government control of health insurance (not simply health care). Just as the frog will slowly be boiled to death, the United States public is sitting in the pot at this moment with mildly warm water. The solution is simple, and yet it requires counterintuitive activity.
Firstly, ask yourself if tax rates will be going up or down in the future. Take into account that the government continues to increase debt at an unsustainable rate while also needing to keep interest rates artificially low. Any increase in interest rates will require the government to go to the only source of revenue it has: taxes. Therefore, taxes will have to go up in the future and stay high for an indeterminable amount of time. Thus, you are at the precipice of the lowest tax rates you will ever see in your lifetime.
Next, ask yourself if you want to have full control over your money and assets. Remember, the government has, at this point, a $17 trillion debt, which will be approx $21 trillion by 2016. ERISA plans presently contain approx $18 trillion in assets. You do the math.
And lastly, cash in the ERISA plans, pay the tax penalty and take full control over your assets, then create a new investment strategy. Look into using the value of cash-value life insurance with a percentage of your portfolio, and then seek out liquid investments which spread over several asset bases, including non-dollar foreign investments with tax favorability, and hard assets such as gold, silver, platinum, etc. Refuse to invest in any mutual funds. Use ETFs, which are immediately liquid unlike mutual funds, which can only be liquidated at the close of market. If you are in a mutual fund that is losing ground, then there is no exit until the market closes and they have hit whatever bottom in sight.
This is an extremely counterintuitive move, yet you will be kicking yourself hard in three to five years when you are locked into a government retirement account with no exit strategy available.