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Thursday, March 1, 2007

Why your 401k is being trashed

Believe it or not, the heavy losses in the U.S. stock markets this week are in no small part due to rumors circulating in China about possible changes to the tax system in that country:

Analysts said the yo-yo effect in China’s markets was exacerbated by the fact that individual, retail investors account for roughly 80 percent of the stocks traded. Unlike big financial institutions, individuals tend to be more susceptible to rumors in the market.

After earning big gains, many investors feared authorities would step in to stem the tide and impose a capital gains tax. Instead, they sought to calm the market, with China’s state-controlled media reporting that the government might allow greater foreign investment in China’s stocks.

If you don't like China's influence over your financial future, you may want to consider moving to a different country. Bush has us borrowing billions a year from these guys. When they decide they want to play rough with us, it will make this week's stock market hit look like a little dinger.

By then, of course, the Chimp won't be around to ask for a Mulligan.

Comments (12)

401K's have been a farce since their inception. Many who are deep into 401's sometimes find there isn't a pot of gold waiting for them at retirement. A history of shenanigans by greedy corporate executives have tainted the 401's from the get-go. Workers sometimes had no choice but to their money into the corporation they were working for...no longer true. Mutual funds can be risky, also and most times are well connected to 401's. Roth IRA's,IMO, are the only honest retirement vehicle for worker bees.

Bob The Builder says:

We Can Build Our Own Private Oregon Stock Exchange.

Yes We Can!

We can stop using Oregon's tax code to spirit private savings away from the Oregon Territory to fund stuff like that of the Dutch East India Company (or Nike). We can place a condition on any tax break to induce savings that the investment be only in productive stuff (not dead real estate) where ownership must be 51 percent in the hands of Oregon residents. We can place a condition that 51 percent of the value added function of any such enterprise occur within Oregon too (link to local jobs).

And it can all be done without regard to whether someone gets their savings from public employment or private employment. And, all the enterprises would be within reach of our own AG and our DAs'.

401k are risky especially when an employer compels workers to buy stock as matching contributions (a la Enron.) However, on average they yield waaaaay better than that 15% of your income going to FICA does.

As far as Bush (yes, he doesnt have a clue) doing something, I think he is as guilty as every politician who has a new financial plan. YOu can look at any scale you want.

CoP - Lets schools/police/roads/sewers go to hell while trams, expensive condos and light rail get every penny they want. They don't like funding boring things like schools and police.

Oregon - Teddy K gets a 20% uptick in revenue, so does it go to a rainy-day fund? You know as well as I do he will hire more workers for things like econ dev. Then the next downturn happens and the taxpayers are really screwed if they expect the state to layoff anyone before they shut down schools.

Fed - You're right we don't want our own debt, but foreigners keep buying it. Let just keep hoping OPEC wants to be paid in $.

Short of moving to another country--which I can't do since I have a client-based small business here--I'm investing some meager funds in other countries' stock markets. So far, okay, not that great, but hey, I'm hoping you can trust the Canadians more.

When the U.S. collapses, most of the others will follow. As soon as they open up the Chinese stock markets to foreigners, be sure to get a piece.

It's too bad we don't have Social Security privatized and invested in the stock markets, too, eh?

Chinese equities are widely available to U.S. investors via ADRs, mutual funds, or ETFs. But I wouldn't own them until the next revolution is over with.

You can't have pronounced income inequality in a Socialist/Communist country and expect the masses to just make do when PLA Generals are driving German cars and Party Hacks are getting filthy rich.

The latest shockwave serves to demonstrate that irrational exuberance has gone global.

You can't have pronounced income inequality in a... country and expect the masses to just make do when PLA Generals are driving German cars and Party Hacks are getting filthy rich.

Why not? It works in the United States.

I think it is easier to "control" the masses in a capitalist country by providing a broad array of opportunity to improve one's economic lot.

You and I might envy the Corporate CEO making millions, but neither of us doubt that we "might have" or "still could" achieve a similarly prominent and highly compensated position? It's called aspirational wealth.

It doesn't mean every single person can get rich, or achieve their fullest potential.

It does mean most of us aspire to greater economic security than we already have.

It also means that everybody can get enough to eat. Not true in China, North Korea, Cuba, and Vietnam. Hmmmmmm?

"It's too bad we don't have Social Security privatized and invested in the stock markets, too, eh?"

I hear you, but if we made the 401k able to buy US Govt paper, this would solve a lot of problems:
1) Americans would buy the debt instead of foreigners
2) We could stop depending on 5 (soon to be 3) young people supporting each SS recipient
3) We'd have an ongoing market for US debt

As far as returns from your FICA tax, if you earn $50K from 25 to 65 years old, what do you get maybe $2K per month indexed.

By my calc, if you took 15% of your avg 50K/yr and put it in a 401K for 40 years @ 4% (t-bill rate), at 65 you would have $738K or $5200/month for 20 years.

umm you already can purchase US Gov debt in a 401k plan. A 401k is not risky, the securities you purchase in the 401k have the risk.

" if you took 15% of your avg 50K/yr and put it in a 401K "

It's a nice thought, but remember: first your 50K gets a FICA/Medicare haircut for some $3,825. Put another $7500 in your 401k and now you have less than $40,000, pre-tax, and state and federal income tax liability that could easily add up to more than $10,000, leaving less than $28,000 to live on. Tough to do, year in and year out.

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