Monday, August 14, 2006

Encouraging investment for Retirement

The New York Times is against you receiving investment advice. Huh? The recently passed pension reform bill among many thing has several items aimed at encouraging individuals to save for retirement. Employers will be able to automatically enroll employees in the 401(k) plan. But the NYT discovered the Republican dirty trick. The managers of the 401(k)s will be able to give advice on investment. Good, I mean, bad, says the Times. Most people could use some advice. My observation in the 25 or so years my employer has had the 401(k) is that too many people park their money in a fixed-rate fund that is outperformed by the stock market in the long run. Not every year, but saving for retirement is the long run. They could use some investment advice. But the NYT warns:
But the bill also imperils savers by allowing for potentially biased investment advice. Previous law quite sensibly banned mutual fund companies from offering advice if their funds were among an employee’s 401(k) options, but it did not give employers a legally sanctioned way to provide such advice. For the new bill, some senators had proposed protections for employers to hire qualified independent advisers. Unfortunately, at the behest of securities industry campaign donors, the House majority leader, John Boehner, fought hard for basically lifting the ban, and won.
Donald Luskin's anonymous friend warns about investing in the NYT:
Here are three pieces of solid and unconflicted advice: 1. Don't buy the New York Times; the fools give it away online for free. 2. Do not take their advice -- it is bad and conflicted (meaning: it will fail you and they only have their political interests in mind) 3. Don't buy their stock; let Sulzberger throw inherited money down his drain.
And he has a good question:
Can the New York Times promote...the New York Times? Or, is that a conflict?
"Well, that's different," says Pinch Sulzberger. Sure is, it impacts his fortune. Let's play it straight. Novice investors receiving investment advice will result in more savings. This is good. Anonymous friend again:
If a company which sells investment products and services is free to promote them, more investment products and services will be sold. If this catches on, more individuals will invest in their own futures. Individually and collectively, this could be good. No guarantees, of course, because investments can fail. Some investments, such as shares of the New York Times Company, can perform very poorly. Losing more than half of your investment is worse even than risking a potential conflict from an advisor. Duh.

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