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My son's 401 K advice--My moral dilemma.

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flamingpie2500 Donating Member (565 posts) Send PM | Profile | Ignore Sun Apr-18-04 07:23 AM
Original message
My son's 401 K advice--My moral dilemma.
My son has an opportunity to invest in a 401K at his factory job.
The company will put in .25 on the dollar.
I have read all of the options--six different ways to invest it, high risk to low risk. None of which is guaranteed.
My moral dilemma is I can't in good faith recommend any of the stock market blood money (which is all it is to me) bank, pharamceuticals, oil and gas.

I want to recommend starting his own savings, which is harder to do, but at least it will be guaranteed!
Am I being old fashioned?
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ablbodyed Donating Member (610 posts) Send PM | Profile | Ignore Sun Apr-18-04 07:28 AM
Response to Original message
1. Own savings gets less than 1/2%....
Edited on Sun Apr-18-04 07:29 AM by ablbodyed
so you have to balance his need to secure his future with your (and his, of course) values. It truly is a dilemma. We have a bank stock that did VERY well. Don't know if their investments are pro-war or not. I would be very conflicated if I knew.
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flamingpie2500 Donating Member (565 posts) Send PM | Profile | Ignore Sun Apr-18-04 07:47 AM
Response to Reply #1
2. Well he is 22 and you know how hard it is to convince them they will
need this money someday! Thanks for the feedback.
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snippy Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 07:48 AM
Response to Original message
3. He should take advantage of his employer's contribution.
He should fund the 401k up to the maximum amount on which the company will make the $0.25 per dollar matching contribution. That is a 25% return and reflects the value the company places on his labor. In effect he has earned that 25% return but can recieve it only by funding the 401k.

As for the "blood money" aspect of the stock market, big business is a fact of life and maybe even a necessary evil. He should not allow that to prevent him from collecting his own full compensation. After he has built the 401k he may in the future be able to direct the investments in what he considers more socially responsible directions than what are now being offered by the plan. He could even request that his company consider having the plan administrator offer a socially responsible mutual fund as an option under the 401k.
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On the Road Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 07:55 AM
Response to Reply #3
5. Agreed -- He Should Max Out His Savings Plan
This is the most important thing for his life and your peace of mind. Even if the interest rate is zero after inflation, his employer's contribution is equivalent to a 25% return the first year.

If necessary, he can choose the most conservative money market option. Some plans allow a rollover after a balance has built up, and at that point he can direct it to socially conscious companies.



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Fla_Democrat Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 07:49 AM
Response to Original message
4. Define guaranteed
If you mean FDIC insured, then do not look for any great rates.
Then again, a mason jar buried in the back yard isn't even guaranteed.

The standard response, well, on the 'money' board I read, is always put as much into the 401K, as the company will match. Why turn down 'free' money.

Now, seeing what you wrote about the stock market blood money, have you checked out socially conscious funds? A quick google ( http://www.google.com ) on social funds, or green funds, might find some options for a self directed ROTH or conventional IRA.

Now, this troubles me... "I want to recommend starting his own savings, which is harder to do, but at least it will be guaranteed!"

Why is that harder? :shrug:


Another option, if low risk is an option, might be to look into U.S. savings bonds. http://www.savingsbonds.gov/
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unblock Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 08:04 AM
Response to Original message
6. nearly all 401(k) programs offer a 'safe' alternative
the 401(k) promoters emphasize the stocks because (a) they make the most money off this product and (b) in the long run, you will, too.

however, i've never seen a 401(k) plan that didn't offer a money market fund or a gic (guaranteed investment contract) fund. low return, but safe and much less controversial.

if stock is indeed the only alternative in his plan, then look for a broad-based index fund such as the s&p500. this way you're investing in many companies at once, which is not only safer, but it dilutes the bad apples ethically. most companies out there are doing legitimate business and are either plenty ethical or are the least ethical they need to be to keep the competition at bay. only a few, unfortunately very visible, companies are flagrantly over-the-top uneithically.

bottom line is, the 25% match is a part of your son's contribution. he's a fool if he doesn't take it. if the ethics of stock market gains are that distuburbing, resolve simply to donate any gains beyond the 25% match and a nominal interest rate.
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gmoney Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 08:09 AM
Response to Original message
7. The .25 match is free money...
It's like earning 25% on his retirement savings. You won't get a better deal than that at a bank, and would have tough time matching that on his own. (If he CAN earn 25% return, he's probably in the wrong business.) Then add to that whatever the return is on the money invested... another 5%, 10%, or more, maybe. Plus, since it's pre-tax money, he doesn't pay FICA or Medicare or Fed/State/Local taxes now, so for him, putting $10 into his 401k is like putting about $16 into a savings account down at the bank. He should put in as much as his employer will match (usually around 6% of his pay).

Since he's still pretty young, he should put it into an a fairly aggressive growth fund -- he can withstand the higher risk now, since he won't be touching the money for a long time. Over time, even if there's another big "market adjustment", he should be money ahead. And he can shift into lower risk funds when he's older.

There are funds available that are "green" for environmentally friendly companies, and I think there may be "socially responsible" funds, too. I don't know if 401k funds allow you to get that specific, but it might be worth asking.

As for the "blood money" aspect, I don't know that there's any way to invest in a general market fund and be 100% assured that some company in the mix isn't going to do bad things. Even if you put it in a savings account at 1% interest, the bank is probably earning money from some less-than-ideal investments, such as WalMart or pharma stocks.

With pharma and oil stocks, I guess try to focus on the good things these companies do. We'd be in a bad way without antibiotics and other serious disease treatments. And the country would grind to a halt without oil. We can work to regulate better behavior on the part of these industries, but until that day, they are what they are -- investment opportunities. (Maybe you or he could buy voting stock and raise a stink at the annual shareholders' meetings.)

One huge thing... tell him to NEVER cash out the money unless it's absolutely necessary. I'm talking if it's a choice between homelessness or cashing the 401k, he should consider homelessness. Stupidest thing I ever did was cash out of my 401k from my first job. It wasn't much then, but I thought I'd be clever and pay off my credit cards with it when I left that job. Ended up giving a huge hunk of it back in taxes and penalties, and lost about 15 years worth of compound growth since then, and will lose another 25 or so years worth between now and retirement... it would probably be close to $200K right now.

Excuse me, I have to go kick the shit out of myself now for doing such a stupid thing.
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leftyandproud Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-18-04 01:59 PM
Response to Original message
8. insanity..
you really think all corporations are getting "blood money"? Is your hate of capitalism that extreme? People provide a service to customers who want that service. Those who do the best job, selling the best goods at the lowest price get the cash...Those who make people HAPPY get the biggest profits. Mutual exchange for mutual benefit. There may be a few bad apples out of the several thousand companies in the market, but I don't think you should let them spoil the whole system. Have your son diversify...get some good value funds, and put a little $$ in cash. Stay long term and he will retire a happy man....thanks to those eeeeevil corporations.
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rapier Donating Member (997 posts) Send PM | Profile | Ignore Sun Apr-18-04 03:41 PM
Response to Reply #8
10. notes
All that has nothing to do with stocks and stock prices.
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rapier Donating Member (997 posts) Send PM | Profile | Ignore Sun Apr-18-04 03:37 PM
Response to Original message
9. notes
Edited on Sun Apr-18-04 03:40 PM by rapier
As a political matter everyone should sell all their stocks. Period.

The tax defered retirement plans have been a disaster for America and a boon to Wall Street. This fetish for stocks will end badly. It is distorting our entire political economic culture, and corrupting it.

The most powerful public relations campaign in history says that 'investing' in fincancial assets is the road to security. It's all BS. Tell him if he wants to take a flyer with his and Uncle Sams and his employers money to go for it but tell him NEVER assume he will see the returns.

Financial assets have been inflating for 22 years. Especially debt. It's the biggest bubble in history.
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rocktop15 Donating Member (376 posts) Send PM | Profile | Ignore Sun Apr-18-04 07:19 PM
Response to Reply #9
11. Cmon--This Is Rediculous
Some people's hatred of Bush and everything corporate on here is rediculous. It might not be the best thing we have, but it's the only practical way.
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rapier Donating Member (997 posts) Send PM | Profile | Ignore Sun Apr-18-04 08:08 PM
Response to Reply #11
12. notes
Edited on Sun Apr-18-04 08:17 PM by rapier
The inflation of stocks and other financial assets has become the be all and end all of our economy and economic policy. This isn't captialism, it's speculation. While speculation is the grease which lubricates the train wheels of market economies speculation has now become the train.

Read Adam Smith and see if you can find any mention of wealth building thru asset appreciation. Inflating assests does not build real wealth. Wealth is built the old fashioned way. Hard work and positive cash flow and investment in REAL profit making capital.

The inflation of financial assets is CAUSED by the manic debt and money creation that has been going on for a long time, especially since 95. Since 95 the total money stock has doubled. Think about it. 1778 to 1995 was doubled in 8 years. Has wealth been created?

Incomes and assets of 70% of the population has fallen. Our public assets and services are deteriorating. Our retirment 'savings' in the form of SS and defined benefit plans are seemingly doomed. Our trade balance and fiscal position is in bannana republic range. Our savings are miniscule.

Savers are punnished with negative interest rates, in itself a tell as to how distorted todays 'capitalism' is, and speculators are rewarded. In fact the Feds low rate policy is guaranteed to the speculators so that more capital can be misallocated.

Todays capitalism is in fact a long story about the misallocation of capital and the failure of the capital markets, the credit market, to operate at all. Todays manic debt creation, which last year required $8 of debt to generate $1 in GDP growth is a picture not of free markets but of something else. Disintermediation and the abandonment of fiduciary resposibility on a grand scale.

Don't tell me that I'm against markets or capitalism. Save that for Rush. Capitalism has been hijacked by the greedy under the guise of 'free market' ideology.
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