Dear John: I’m 22 years of age, and I’ve now been working at a financial institution for a year and half.
I’ve been asking all my co-workers about helping me set up my 401(k) because I really don’t know what to invest in. And they all seem to be giving me the runaround.
I think that they don’t know what the hell they have set up when it comes to their own 401(k)s.
I really have no knowledge when it comes to choosing investments. Any information would be great to help me get started.
Appreciate the time. E.H.
Dear E.H.: Funny you should ask, because my daughter asked me the other day about investment choices for her new 401(k) — and I told her to ask her brother.
Why? Because there are really no good choices right now. And because my son is closer in age to her than I am and has a better feel for the risks that are acceptable to a younger person.
Why are the people at your job ignoring you?
First, because you don’t have a lot of money. So it’s probably not worth the time of people who work at a financial institution to sit down and explain everything.
But I don’t think it’s because they don’t know their own investments. Rather, I don’t think they want the responsibility of telling you what to do in an extremely dangerous market.
Stocks? They’ve been running up in price for five years in a lethargic economy because the Federal Reserve is addicted to printing money as part of quantitative easing. How long with this market bubble last? Nobody knows.
Bonds? A worse bubble. Since the price of bonds always moves inversely to interest rates, bond prices right now are very, very elevated because interest rates are very very low. When will that bubble burst? Who knows?
What about so-called “diversified” funds? Well, those contain a mix of bonds and stocks. So they should be safer, right? Not necessarily.
In fact, there’s a very good chance that stocks will tank and interest rates rise at the same time (so bond prices will automatically be declining), and you could take a double hit.
A money-market fund? Sure, these funds are safe. But nobody is getting rich keeping money in money markets, which are essentially cash.
Now for the bright side of your question: It’s good that you set up a 401(k) — especially if your company is matching part of your contribution.
But that’s about the only thing I can say about 401(k) investments that everyone would agree with these days.
Sorry if I seem to be waffling on the answer to your question, but really, given the current environment and investment options, that’s the most honest thing I (and your co-workers as well) can say to you.
Dear John: I’m getting a 5 percent tax-free return on triple-A municipal bonds, and so can everyone.
Why is this ignored? R.D.B.
Dear R.D.B.: Good for you. And people should know about this alternative.
But the answer as to why people are reluctant to invest in local governments is simple: Detroit; San Bernardino, Calif.; Mammoth Lakes, Calif.; Stockton, Calif.; Puerto Rico; Harrisburg, Pa., Central Falls, RI; and Boise, Idaho, just to name a few.
Sure, you are investing in Triple-A debt, and it’s making up for what you can’t get on things like certificates of deposit and money-market funds. But even though you might not think so, you are taking on risk.
The places I just named all filed for bankruptcy last year.
And if income-tax revenues to states continue to decline — as the Rockefeller Foundation recently discovered they had — then there will be more.
My point? Check the principal on those investments. You could be getting yield and still be losing assets.
Send your questions to Dear John, The NY Post, 1211 Ave. of the Americas, NY, NY 10036, or john.crudele@nypost.com.