The Great 401 (K) Hoax: Why Your Family's Financial Security is at Risk, and What You Can Do about It

Rating:
Summary: Some right questions but no real answers
Review: I have a very ambivalent feelings about this book. First of all, the name of the book is misleading. Although many chapters are devoted to 401k it's really just a background for authors musings about capitalism, free market and the government. The main theme of the book is that government has to be in charge of workers pension since nobody else will guard their interests. The problem though that in giving us the reasons why it has too be so the authors sometimes not very convincing and often contradict themself. For example, they totally reject the notion of partially privatizing social security (where employee will be in charge of part of their money) but at the same time advocate employees total control over their 401k (I am not trying to argue for one soluton or another - just state the fact). The book tries to give an answer how to invest during stagnating market but doesn't give any insight and simply rehearsing whatever was said many times and what more or less educated investor already knows. Yes, the authors are right to be concerned about the state of financial affairs of current and future retirees but I found their notion of 'evil Wall Street' not very serious. There are so many factors at play and relegating it all to 'bad' corporate world would oversimplify very serious problem. Three stars for bringing the subject up but not dealing adequately with the issue.

Rating:
Summary: Boring, and not really on the point
Review: I have to agree with the previous review. Some of the discussion about the stock market is interesting, but not relevant to 401k plans.

Rating:
Summary: the great de-leveraging
Review: This is a good book for its rich historical context of current supercycle boom/bust, and many of the economic issues and analyses parallel those from Financial Reckoning Day: Surviving the Soft Depression of the 21st Century, by William Bonner and Addison Wiggin, and their awesome internet newsletter at dailyreckoning.com.

The authors put alot of trust in government to manage the social safety net and pension. While the government sector might be more stable than the corporate, its not clear to me that its significantly more stable. Historically, governments have a penchent for wasting national treasure on things like sports stadiums (at the local level) and military adventurism and/or empire building (at the federal level) that must be paid for somehow, whether through inflation, debt, and/or taxes.

Furthermore, Americans disproportionately consume the planets resources, as the worlds largest debtor nation, no less. Without analyzing how or why this came to be, it would seem to be an unstable situation. I view globalization and its processes of outsourcing and/or offshoring as a great leveling process, that will result in a net transfer wealth from the first world's middle classes to the third. The elite drive these processes, and I assume that they will consolidate a large amount of that wealth.

I find it ironic that Alan Greenspan has presided over the largest paper money/debt boom in history, as it was not very long ago that he penned statement below:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value." -- GOLD AND ECONOMIC FREEDOM by Alan Greenspan

And with the United States as the worlds' capitalist god, this quote by Jefferson may seem quaint, but it still makes one pause:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." -- Thomas Jefferson

So anyway, buy up those short-term treasuries, TIPS, and bank CDs, and brace for the great de-leveraging. And while building that wealth, hope for the best, ignoring the pessimists who say things like:

"In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." - Warren Buffet on Derivatives

Rating:
Summary: Important Topics, Blurred Focus
Review: Today's 401 (k) retirement plans will not fulfill the implicit promise they represent for Americans hoping to retire in comfort. William Wolman and Anne Colamosca believe they are structurally flawed and have investment biases that are out of touch with the economic realities faced by Americans in a post bubble period. Their ideal retirement plan would have greater investment options, but with less emphasis on stocks, no restrictions on the ability to buy or sell securities, and little or no stock of the employee's company, with company matches being made as cash rather than stock. This book is a call for reform as well as a marginally useful guide to investing in the new millennium. The text occasionally rambles and the authors' political bias is distracting [ e.g. 401 (k) plans are the result of an excessive faith in the free market, Americans are entitled to their pensions as "citizens" rather than as employees, etc.], but a strong case is ultimately made for reform.

It is a key premise of this book that the equity markets will be stagnant for some time. This "stillwater" period of slow growth and anemic returns will be the result of a slowing in IT spending, the sticky consequences of a decade of accumulated debt, an aging population that consumes less, additional accounting scandals that will undermine investor confidence, globalization (viz. offshoring), and a national hubris that misses most of this.

At three periods in the 20th century stock market prices became dramatically out of balance with underlying earnings, collapsed, and two decades passed before prices surpassed their bubble highs. Significantly, the general rates of return for equities in the twenty years following the 1901, 1929, and 1966 peaks averaged less than two percent! Even now after the market blowoff in the 1990's stocks appear to be overvalued based on an historical price earnings ratio comparison for the S&P 500. For the entire 20th century stocks traded at a multiple of 12 times their earnings and in the post-1945 era 15 times earnings. Today the S&P 500 is still trading at 22 times earnings.

So what kinds of investments will work in this slow growth decade. The authors struggle to come up with persuasive answers. High paying dividend stocks are recommended in the earlier, hardcover edition, but proposed changes to the tax law make the authors wary. Bonds were recommended as "the core" of our 401 (k), but after a string of successful years and with the likelihood of higher interest rates their future performance becomes problematic. Better to stick with Treasury inflation-indexed bonds (TIPs), short term CDs, cash, and some exposure to the expanding Chinese and Indian equity markets or even a high-tech fund. The resulting picture is muddled. Perhaps part of the answer to secure a comfortable retirement lies beyond an imperfect 401 (k). It might include alternative strategies such as immediate annuities, reverse mortgages to unlock real estate equity, commodities and auctioned collectibles as inflation hedges.