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Steady as She Goes

In a recent blog for Marketwatch.com, Philip van Doorn does an excellent job encouraging the large number of working Americans who do not currently participate in their company’s 401(k) or similar retirement plan to get with the program. We wholeheartedly endorse his call to action: participate and allocate.

Van Doorn cites many of the same sad reasons we have mentioned over the years why workers sacrifice the convenience of a savings tool like a 401(k)—money whisked silently out of your paycheck—or worse, the tremendous financial benefit of an employer match. While it’s true younger workers may at first have to sacrifice to contribute amounts that qualify for matching programs, we like Van Doorn’s tough love: sure you never had this kind of cash in college, kids, but that new car and all those nights eating out could pay for your retirement someday, and they should.

As we have said before in this space, it hardly makes sense anymore that once one has started to accumulate savings in an IRA or 401(k), deciding how to invest those savings is just too complicated. Citing one of the most successful investors alive, Warren Buffett, Van Doorn suggests index funds as an easy way to invest in the market without high fees or the complex strategies of active stock picking. While not every company’s retirement plan offers them, they all offer something similar.

(NOTE: One item we don’t endorse in Van Doorn’s list of suggestions is to invest in the fashion of Ben Carlson’s "Bogle Model," which according to our calculations, yields not much more than traditional pie-chart asset allocation models, or well under 9% average annual return).

The most recent excuse not to participate was the fear—only recently departed—that Trump’s new tax plan would eliminate the pre-tax benefit of a 401(k). In our minds, that would not have been an excuse even if it had been part of the final proposal. We’ll all need something to live on when we stop working (or are asked to by our employer), and the sooner we start saving in one way or another, the greater the amount of savings left after taxes of whatever kind. Rather than trying to game the political system, or worry whether we’ll lose money in complicated schemes, workers are better off relying on the steady climb of the market over time (still an annual average of 10%, longer term), making retirement savings a part of everyday, workaday life.
 

Kevin L. Coppola, President, Compass Investors, LLC

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