Why people should self-manage their retirement accounts.
The Problem
Most people are aware that the average American is getting swindled in their retirement accounts. Many are aware there used to be a better retirement system in this country. Many are aware that there are a lot of people that do not have their best interests in mind regarding their investment decisions.
However, few know the extent that they are being deceived. Few are willing to put in the effort to do anything about it. That is the main reason I started this blog. To help people understand the problem, and give them strategies to work within the bad system we have in place. I fully believe in staying with your circle of influence as Steven Covey put in his pillar work, The 7 Habits of Highly Effective People
. One should do everything they can and not worry so much about politics or hoping that the Wall Street mega-corporations will someday come to their senses. The average person has no control over the immense corruption in our political landscape. Yet many focus on these things way too much, in the misguided view that changing a few people’s opinion will have some effect on the situation. The reality is the Oligarchy will continue on for the foreseeable future.
Why I created this blog
I do not want to make this blog about politics in any way shape or form. Someday, if I have a lot more free time on my hands, perhaps I will start a politics blog but right now I do not have the time or desire. But, I do want to stress that people need to focus on the right things. Yes, that may vary from person to person, but by and large I feel people have it wrong. People will spend hours every week bickering about politics, or researching a lawn mower purchase, or watching reality TV or sports. While entertainment is something that people can utilize to unwind, it can be overdone and often it is.
The point of this blog is to make people aware of what is going on, and what they can do about it. I have devoted a good chunk of my life to learning market structure. I hope to be able to convey that to people so they can make more informed decisions. Now it will take a long time to get all the information out there, especially when I live a very busy life myself and even getting the one blog post out a week that I strive for is a challenge. But, it is a challenge I have decided to take on and I fully intend to succeed. If I fail it will not be without a fight.
The Evidence
I had another topic planned for this week, but I saw a well done piece by John Oliver about Retirement Plans. Now, I know many will not agree with his politics as do I at times, but they do a great job on this piece. It reaffirmed many of the things I know to be true from my own research. Here is the segment:
Another piece I watched this week, is one from Frontline that I had not seen called the Retirement Gamble. John Oliver referenced this a few times in his bit, so I looked it up and watched it as well. It goes into depth on the issue. You can watch it here.
Now there are problems with these two bits of journalism in that the other side is not really given a chance to defend themselves. That is common with a lot of media these days, so I did find a really well done review that highlights some of the flaw over at The Chicago Financial Planner Blog. Go have a read it is really well done, and it does highlight many things that I say on this blog as well.
What do I recommend?
So where do I come in, and what are my suggestions. For people that are not willing to do any research, I think if it is possible they should just put their money into an index fund. Which index fund is up to them and will primarily be based upon their age and risk tolerance. In genera,l if you are young, you should be in a more aggressive asset class such as small cap stocks. You could buy a Russell 2000 index fund, such as this one in this case. As you get older you may want to move to Mid Cap and Large Cap index funds. If you are very close to retirement, bond funds might be more appropriate. One problem here is that many Retirement accounts do not have a good selection of index funds. That is mostly because of some of the nefarious things that go on behind the scenes.
For people that are willing to put in a little more effort, I do believe it is possible to determine which mutual funds are more likely to outperform the market. I have gone into some detail on this in my series A layman’s guide to managing your workplace retirement accounts. While the series is a bit rudimentary in scope at this point, I do intend to expand upon it greatly in the future.
For people who want to go a step further, you can use a timing model to time entries and exits of your funds. Now many frown upon this, they say the market is efficient, etc. While it is difficult, it is doable. The main reason for doing this to avoid the rare catastrophic market collapses. It can improve returns as well, but primarily it is to avoid catastrophic losses.
For the next group of people, and what I want as many people to do as possible, is to trade individual stocks in an IRA and only put up the matching amount into their 401K. Again, their are many dissenting opinions here, but I fully believe many of these voices are there to funnel people into handing their money over to the corrupt retirement account industry.
For more information on this, go through my retirement account series. I will expand upon these ideas, albeit slowly, in the future.
The managing your workplace retirement accounts series:
Originally published at Speculate Freedom.
