I was watching a video today. It wasn’t about what I’m going to write but it lead me to this conclusion once I saw the stats. The government changed 401K’s. It used to be you had to opt in to 401K’s now you have to opt out. It used to be when you opted in your money went into a money market, now it goes into a target dated fund AUTOMATICALLY. I found out 60% of 401K’s, now automatically funded, hold a single asset, a target dated fund. The amount held in this class is 2.4 trillion. You might say, well that’s good! People are being looked after! But who is really being looked after and at what cost? Fore every dollar put in a target dated 401K the government owns a percentage and that percentage has little to do with the fund. The government has effectively turned your retirement into their annuity which you will pay to them on their schedule for the rest of your life. The target fund is pretty much proprietary as well what you see is what you get. The fund gets to collect fees, forever, and even at 10 bp that’s a hell of a lot of fees on 2.4 trillion dollars. In addition your money is locked up in risky assets not of your choosing. You can’t buy gold or commodities or hedge in anyway. You can’t reallocated and put risk on or take risk off. Your money is entirely managed and not necessarily for your benefit.
If the market goes up your account grows. If the market goes down your account crashes PERIOD. If you need some money you sell some fund whether it be low or high. Your sale has no flexibility. You can’t sell bonds if they happen to be high and you need some money and not sell stocks if they are low. The same is true with purchase. You buy a share of fund automatically no matter if the market is at all time highs, all time lows or in the middle. Shares are purchased robotic-ally, essentially by government mandate. This set up makes you entirely vulnerable to SORR. The only thing you have to sell is a share no matter the price and the only thing you have to buy is a share no matter the price. Price is not part of the equation. The algorithm is dirt simple. A buy order is placed and a share is bought a sell order is placed and a share is sold. No other optimization allowed when a share is sold Uncle collects the taxes on the entire amount as ordinary income, not on just the profit. If you bought a share at $100 and sell it at $50, you get taxed on 50 even though you have a $50 loss. If inflation has eroded your purchasing power by 50% so your $100 is now worth $50, you get taxed on the $100, now worth $50 and the government pays off it’s debt with your devalued retirement money. I checked an old 401K today I haven’t looked at for a few years it used to be in JP Morgan, now it’s in a Vanguard target dated fund. It changed all by itself with no input from me.
The real trick is to stuff the rabbit back in the hat.