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Written in 2006 What I see in my Crystal Ball could change your life! I see people who thought they were going to retire early working past the age of seventy! I see old folks re-entering the work force to try to survive! These people will come to be known as the 401k suckers. I see the greatest pyramid scheme in the history of mankind unfolding in front of our eyes.. Not a believer? Take a good look at this chart and tell me what you see...
Let's start by looking at the increase in the '20s. The incline is rather steep and prolong unless you compare it to the 1990 - 2000 period. Of course, as we now know the incline was the result of DEMAND FOR STOCK caused by highly leveraged purchases from every Tom, Dick and Harry. The market quickly corrected itself on BLACK THURSDAY, October 24, 1929. Then came the good times associated with killing people in other counties. Ah, the Prosperity of War. This was followed by the love generation and status quo. The stock market almost fell asleep until suddenly stock prices started skyrocketing.. wow, what happened? Did companies start printing money? How could the value of the companies continuously increase over such a prolonged period? From 1,000 in the '80s to 11,000 in '06! The answer is very simple, yet few people will tell you for several reasons. The answer is ERISA! The provisions of Title I of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension plans were being mismanaged and abused. ERISA was the culmination of a long line of legislation concerned with the labor and tax aspects of employee benefit plans. Since its enactment in 1974, ERISA has been amended to meet the changing retirement... That's the official answer but the truth is that ERISA (Employee Retirement Income Security Act) was a combined effort of Big Business and Government to place the burden of saving for retirement on the backs of the workers. ERISA, which resulted in the creation of 401k retirement plans, generated billions of dollars of saving for Big Business. Unfortunately, the worst is still to come! ERISA has made investors out of people trying to save for retirement. DEMAND FOR STOCK, like in the '20s, is what is driving up the price of the stock - not company valuation. Money managers have no choice but to buy stock with all the money they are sent - that is why these 401k funds are referred to as "dumb money." This money comes from people who are untrained in investing, don't have enough funds to have their own professional broker, are willing to accept sub-par returns in order to ignore the issue and need a false sense of security. The worst performing funds over the last ten years are the 401k funds. These funds have been able to show growth only due to the pyramid scheme - more money is going into the market than coming out. As long as more money goes into the market than comes out these funds with appear to be growing. But how long can this last? How long before the baby boomers stop contributing to 401k accounts and start taking funds out? The front edge of the baby boomer generation turns 60 this year. Many of them, like myself, friends and neighbors have sizable accounts and retired early. At 59 1/2 (actually earlier) we were able to take the money out without penalty. However, due to the tax laws, many retirees will take out their money gradually until the panic sets in... then...watch out! The retirement accounts of many middle class Americans will be reduced to nothing over night! However, the rich will continue to get richer. They are taking companies private at a record pace. They are carefully moving their money into areas that won't be impacted. And remember, few if any rich people, have 401k plans. What about Big Business, will companies go broke? No doubt they will be hurt but some of the reduction in sales will be offset by lowering labor costs. As in the '30s, when the DEMAND FOR STOCK ends the market will correct itself and a new era will begin. As for me, I will be sipping wine while watching the sunset on the beach in Baja with my wife. As I watch the sunset I will wonder to myself if anyone ever made it to this page, read the article and was saved from financial ruin.
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