If Henry Ford had regretted popularizing the automobile decades after his efforts, would you raise an eyebrow?
I know I would. Which is one reason I did just that when reading a recent piece in the Wall Street Journal about a man named Herbert Whitehouse.
It seems that Mr. Whitehouse now has pangs of conscience with respect to his role in popularizing the now-ubiquitous 401(k) retirement savings plan.
Whitehouse, a former Johnson & Johnson (JNJ) executive, pushed for the adoption of 401(k)s in 1981 as a way to supplement a company pension that guaranteed payouts for life.
Here’s how the WSJ puts it:
Thirty-five years later, the former Johnson & Johnson human-resources executive has misgivings about what he helped start.
What Mr. Whitehouse and other proponents didn’t anticipate was that the tax-deferred savings tool would largely replace pensions as big employers looked for ways to cut expenses.
And with just 13% of all private-sector workers now having access to traditional pensions (vs. 38% in 1979), it’s easy to see why the cloud of regret hangs over the Whitehouse.
The WSJ piece continues with the following description of the early push that made 401(k)s popular, and how those responsible are lamenting that push.
Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save.
Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.
Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.
I think all of this is likely true, especially the part about forecasts being too optimistic.
It’s also true that a 401(k) leaves one exposed to market drops and high management fees found in so many mutual funds. (Note: In tomorrow’s Morning Edition, Grant Wasylik will show you how you can tell whether your mutual funds are worth the fees.)
Still, there is a flipside to this coin. Unlike a traditional pension plan, a 401(k) allows you to participate in the good years of the stock market … and there have been many more of those than there have been big drops.
I have no doubt that the decline in traditional pensions has contributed to more retirement angst than there once was.
But the reality in the corporate world for decades has been the inability of most companies to offer a decent pension the way many could in the 1950s and 1960s.
Given this reality — and the reality that, like it or not, your retirement options are basically your 401(k), Social Security and your own outside money saved and invested — what should an investor do?
My solution might be somewhat biased here, but I think it’s spot-on.
That solution is to be active with your money … such that you are able to grow your investments over the course of your working life so that you never have to worry about money when you retire.
Yes, this is easier said than done.
Yet there are thousands of individuals retiring each year with plenty of money to fund decades of post-employment activity.
How did they do it?
Well, some started saving early, and that’s good. I mean, there really is no substitute for the power of multi-year compounding.
Also, some people just make a lot of money in their work lives. This gives them the ability to put more money to work, save more and just have more in retirement.
Yet there are those who made what could be called a decent, above-average salary during their work years. And some of these folks saved a decent amount of money during their life. (Decent here is about 10% of their annual income, on average.)
The difference in this last group — and what allows them to retire comfortably — is that they’ve taken advantage of the investment opportunities in various equity, bond, commodities and options markets.
These are what you might call the "active investor class," a class of smart people who make up the core of our readership here at Uncommon Wisdom Daily.
In 2017, our commitment is to help those in the active investor class achieve their investing goals, and to help them buttress their retirement situation such that they don’t ever have to lament any investment choices …
Even their choice to save via a 401(k).
OK, here is where I need some information from you. Is your 401(k) your primary savings and investment tool for retirement? Or, do you use it in conjunction with either a pension or your own investment accounts?
Knowing this will help me craft our messages going forward, both in the Afternoon Edition and in our newsletters going forward. So, please share your thoughts with me by leaving me a comment on our website or sending me an e-mail.
The markets started the first trading day of 2017 with gusto. The Dow gained as much as 177 points within the first half-hour of Tuesday’s session, but pared that advance to 119 points (+0.6%) by the end of the session.
Some highlights from the year that was:
• The Dow gained 13.4% in 2016, coming within 22 points of 20,000. Goldman Sachs (GS) was credited with the bulk of the Industrials’ gains, adding more than 400 points post-election. This after being the Dow’s worst performer (down 20%) after the Brexit vote in June.
• The S&P 500 gained 9.5%. Like the Dow, bank stocks were big contributors to its gains with their 19% advance. But it was energy that outshined the rest, with the sector gaining 23%.
• Crude oil rose 45%: This was West Texas Intermediate’s biggest annual gain since 2009, when it surged 71%.
• The Nasdaq gained 7.5% despite a dearth of tech IPOs (and none scheduled yet for Q1 2017), a swath of tweets from politicians about sky-high drug prices, and concerns that techs that have manufacturing operations overseas could see a big dent in their profits during a Trump administration.
• The greenback gained more than 3.7% for the year, as measured by the Dollar Index, which tracks the dollar’s performance against a basket of other world currencies. This after a 7% gain just in Q4.
• Treasury yields hit an all-time low of 1.366% in July. The 10-year note is starting off the new year at 2.5%.
• Gold gained 8.5%: That’s down about 16% from its high-water mark of $1,364.90 in July. But even though the yellow metal felt the pressure of late-year selling, this gain means an end to its three-year losing streak.
• Silver also ended 2016 above where it started, notching a 15.7% gain for the year.
And here in the new year …
• Oil fell 2.6% in Tuesday’s session to a two-week low thanks to a stronger greenback.
• Gold climbed 0.9% to a three-week high despite positive economic data. (See the next two items.)
• November construction spending rose 0.9%, to $1.2 trillion — a 10.5-year high. (And up 4.1% from a year ago.)
• More manufacturing activity in December: The Institute for Supply Management’s gauge rose 1.5% to 54.7. It’s been above 50 (a level that denotes expansion in the sector) for nine out of the last 10 months.
• The deal signed by OPEC, Russia and other exporters to slash daily oil output by almost 1.8 million barrels a day kicked in on Jan. 1.
• The Earth will be at its closest point to the sun tomorrow, Jan. 4. At 9:18 a.m. Eastern, we will be 91.4 million miles away from the bright yellow orb. We will be an extra 3 million miles away at our farthest point from the sun for the year, which is likely to be July 3.
Good luck and happy investing,
Uncommon Wisdom Daily