Conference 7.286::digital_investing

    Did anybody catch the SAVE allocation as of 4/1/95 for DIGITAL
    employees in the latest beny bulletin?  40% in the fixed income
    fund, less than 4% in the equity index fund.  Ouch.  Lots missed
    that boat.
    K
    

You've got to credit DIGITAL for trying to educate its masses about the poor
long term investing choices most of them seem to make with respect to SAVE,
especially the younger ones.

    Hey, I have a big chunk in the Stable Value fund, and most of
    my stock market stuff in an outside account where I can control
    what securities I invest in, instead of the tiny amount of
    securities choice in the SAVE plan.  Having stuff in the Stable Value
    fund means I sleep at night even when the market tanks :-)
                  

    Karen,
    Deferring taxes on the 401k's stable value fund while paying taxes
    on (better performing) outside accounts the last few years is
    EXACTLY the opposite of what you want to do.
    .02 K

Re:  .15

That depends on whether the outside investments, even with gains taxed, 
outstrip anything you can do in SAVE.

I put a great deal of my SAVE into the Stable value fund, having put a 
much larger amount into a very risky startup.  If the startup pays off, 
it will dwarf SAVE; if it goes bust, I've protected a bit of my future.

Obviously, there are different viewpoints on these things.

- Scott

One can certainly use the stable value fund to lower risks in your overall
portfolio. However, it seems that if your investment horizon is 10 or 15 years
at minimum, unless you believe history will not repeat, it seems foolish not to
put a big chunck in stock equitites. If, in .16, your risky investment goes
bust, will you have protected yourself against inflation risk and will you have
enough to retire on when the time comes? For some people, indeed they may be
positioned to do so. The Average DIGITAL employee, whomever he or she might be,
probably is not in such a position and probably has an asset allocation and
savings rate with a low probably of retiring with a big enough stash to
be comfortable, with an income level anywhere near current salary level. 

In this sense, the average employee is perhaps not being prudent in his/her
strategy for retirement. Many people end up with sharply reduced living
standards after retirement. Most of today's elderly didn't have the opportunity
to invest tax sheltered in a 401K plan for most of their working careers. The
average DIGITAL employee today DOES have that opportunity. I think DIGITAL is
doing a good job of educating that employee in pursuing a strategy that is more
likely to result in a more comfortable retirement. No one knows, of course, if
these strategies will continue to work in the future as they have in the past. 

re: .17

Please don't assume anything about my time horizon or my other investments,
tax-deferred or otherwise.

As I said, there are different viewpoints possible on how to satisfy 
different needs.

- S.

    Re: .15
    
    I don't pay significant taxes from year to year on my outside
    security accounts if I buy and hold stocks for long term
    appreciation, and avoid mutual funds which make large taxable
    distributions, for example, my largest holding is the Vanguard
    500, which produces very low current taxable returns, as opposed
    to trading frequently.
    
    And when I do sell eventually in the outside accounts, proceeds
    will be taxed at capital gains rates, which are significantly lower
    than the income rates that the 401K proceeds will be taxed
    at when I start taking funds out of that (note that the 401K
    magically transforms capital gains into income, thanks to tax laws,
    an often overlooked gotcha.)
    
    Another reason for keeping my "safe" retirement funds in the Stable
    Value fund is that it has pretty consistently slightly beaten long term
    CDs in yield.
    

    Historically speaking, 99% of the species that have ever lived on earth
    are extinct.  Just food for thought.
    
    During the recent investment "training", a fairly comprehensive
    evaluation was made to determine what your "actual" retirement
    requirements were.  Based on this, a percentage resulted which
    indicated how much more you needed to invest to reach your goals.
    
    In the case where the percentage is very low, indicating you have
    sufficient investments and portfolio mix to meet the chosen goals, some
    might be willing to take risks to increase their final payoff.  Others
    make prefer the security provided by accepting modest returns, as long
    as basic goals are met.
    
    One thing that I thought was educational was a brief questionaire that
    allows you to evaluate your tolerance for risk.  This then factored
    heavily into the hypothetical portfolio selected for the purposes of
    the exercise.  I thought this did a good job of helping quantify
    something that typically would fall under the category of "gut feel",
    and legitimized the desire some have to pursue security instead of the
    "possibility" of wealth.  
    
    I admire faith in history, but though the use of historical trends may
    have an overall benefit, statistically speaking, it may not be so kind
    to every specific individual.  Despite the trends, there is a *lot* of
    room for give an take, and recent cases of fraud should remind us that
    no matter what the stock market does, there is no guarantee that other
    circumstances won't lay waste to your nest egg.
    
    jeb
    

    .20> ...there is no guarantee that other circumstances won't lay waste  
    .20> to your nest egg.

    Indeed.  Here are two more deferred-compensation risks to ponder:

    Statutory Risk - The risk that the laws governing the tax treatment
    for 401K and IRA fund balances and withdrawals will change in the
    future.  When the baby boom retires, the increased load on the
    Social Security and Medicaid entitlements could prod the government
    to raid our retirement savings.  It could do this by changing the laws
    on when the savings must be withdrawn or defining some level of assets
    as "over funding" subjecting the excess to a tax.

    Demographic Risk - The risk that the normal behavior of the stock
    market and real estate market may be impacted by a large number of
    baby-boom retirees exiting these markets at the same time.  The net
    inflow into these markets we see now due to the baby-boom's pensions 
    and other retirement investments will reverse itself causing a long
    period of bear markets just when younger boomers need to start cashing
    in. 

    The demographic risk seems unreasonable to me.  It is based on people
    investing successfully in stocks for 10-15 years and then pulling out
    massive amount of their investments.  If the market makes money for
    people for 10-15 years, why will they pull out?  They may be more
    conservative - moving to more conservative stocks, more income
    producing stocks or a more conservative allocation between value and
    growth.  But -- assuming they have 10-15 years of success compared to
    other investments -- why would they move out of stocks entirely?
    
    My parents have not changed their investment patterns significantly
    over the last 25 years.  If anything, their success has been more
    pronounced recently.  They had an approach and it worked so they have
    stayed with it.  The next generation will too.  Of course it must work. 
    If it doesn't then something else will have to be found (or looked
    for).
    
    Jeff

I agree with .22. Many people who have invested with retirement as an objective
will find that their portfolio will not supply their target income for
retirement if it is all converted to low-risk/low-return investments. Even if
people retire at 65, they still have, what 20-30 or more years on the actuarial
tables, and many will not be able make it with a portfolio that is only
expected to return what would be around 6% at today's rates. On the other hand,
if interest rates in 2010 are Carter-esque, the equities markets may be very
low and everyone might have piled into bonds yielding 15% (heaven forfend).

Another point I've heard is that the market is becoming more and more global.
Some countries which are increasing in wealth rapidly have relatively young
populations who may choose to participate in the same markets that US baby
boomers are now so heavily into, so that the importance of the latter's
asset allocations could diminish.

As to the statutory risk (.21) of the government changing the rules, the AARP
is the biggest gorilla in Washington, and I don't think it'll be on any
weight-loss diets between now and 2005 or 2010 when the boomers start hitting
retirement big time. They've just shown themselfs powerful enough to quash
recent attempts to "downsize" the definition of the consumer price index so as
to lower COLAs, cost-of-living adjustments that determine the yearly increases
in Social Security benefits and in a lot of other government benefits. Today,
many of the geezers on Social Security think they're just getting back what
they put in, since they don't want to admit they're in effect on  welfare after
the first couple of years of payout. 

As a geezer-to-be, let me tell you gen-X slackers and the rest of you
youngsters that I, and my boomer cohorts, think we've already put in enough Soc
Sec taxes to have earned our inflation-adjusted benefits when it's our turn at
the trough, oink oink. So get cracking, upgrade your job skills, and get used
to paying through the nose so wealthy elders can live in comfort while you
don't have enough dough for a down payment on a house. Oh, you guys don't vote?
Yeah, you're right, why bother. I'll take it in crisp new hundreds with the big
Benny Franklins on 'em, and thanks!

    .22> If the market makes money for people for 10-15 years, why will they 
    .22> pull out?

    Two reasons:

    1) Because they are not living off a paycheck anymore.  The money to
    live on now comes out of the market.  Before retirement, these people
    lived off the paycheck and put part of the pay into the market.  Now,
    they will need to sell part of their holdings to live on. The net
    result is that the money is flowing the other way.

    2) Who says that the market will continue to provide the returns we
    have seen for the last 5-6 years?  If people get burned once between
    now and retirement, the interest in safe investments could grow.

    Re .23

    > As to the statutory risk (.21) of the government changing the rules, 
    > the AARP is the biggest gorilla in Washington, and I don't think it'll be 
    > on any weight-loss diets between now and 2005 or 2010 when the boomers 
    > start hitting retirement big time.

    This is true but who says that this voting block will stay homogeneous?
    I think it will split into the haves and the have-nots.  The haves will
    be living off of 401K/IRA investments and pensions.  The have-nots will
    live off of Social Security since their McJobs provided no benefits
    and they spent their 401K money soon after they left each job (no
    rollover).  And guess what, there will be many more have-nots.  They
    will turn on the haves to fund Social Security from the 401K funds. 
    Meanwhile, the X'ers will figure out that dead boomer's don't collect
    benefits and it will be open season on anyone with gray hair. 

Re .23

>As a geezer-to-be, let me tell you gen-X slackers and the rest of you
>youngsters that I, and my boomer cohorts, think we've already put in enough Soc
>Sec taxes to have earned our inflation-adjusted benefits when it's our turn at
>the trough, oink oink. 

    So because boomers were stupid enough to let today's seniors rip
    them off, they should take it out on the generation X'ers (who had
    no say at all, until recently, in Social Security)???

    That's an interesting attitude....

    					Ed

    re .25: That was the scheme proposed by the governments: Those who work
    pay for those at the troughs. The geezers, having put their retiremment
    money into the government for the last 30 years have no alternative then to
    take it out on the boomers. If you have another suggestion (a
    reasonable one please) let us know.
    
    Al
    

    re: .23,.25
    
    Ed,
    
    I think Steve had his tongue in cheek (somewhat) in his reply to all
    the X'ers.  I laughed at it anyway.  I still have another 25 years of
    funding the trough.
    
    You should be angry at the Washington politicians for not fixing this
    broken program.
    
    Dan
    
    

    re: 27
    We must not be angry enough at the politicians in Washington since we
    put the Big Kahuna back in office to do it to us for four more years.
    

    re: .28
    
    No, Newt only has to be there 2 more years...
    

	Ok, this tangent has really gone down hill.  Please take
	any discussion of the Social Security System to the
	Market_Investing or Soapbox notesfiles.