Are retirement investments just fueling the wealth divide?

Various investment structures, in particular mutual funds, charge fees. These fees generate fantastic riches for the various fund families and investment banks. If you want to make millions just start an investment fund. And, more and more, ordinary people are being “forced” to partake into this system, via 401K, IRA, and other investment products. If some political parties have their way, also for everything else: health, social security, education, and so forth.

Nothing wrong with fees. If you do a good job you should get paid. The problem, just like CEO compensation, these fees are owed no matter how the investment performs. Thus, wealth is being redistributed, not earned.

Is Wall St., in the guise of retirement funding, rearranging chairs on the Titanic, just giving the upper crust the better view?

As Lipper Analytical Services has demonstrated, the vast majority (94%, as of the most recent 5-year survey) of managed mutual funds have historically underperformed the stock market as a whole, making inexpensive index funds, which attempt to mirror the performance of such market indexes as the S&P 500, a more lucrative investment. It seems strange to us that so many investors are willing to pay the higher fees of managed mutual funds when they can do better with the cheaper index funds, and even better by managing their money for themselves. If mutual funds are wise, we think it’s better to be a Fool. We’ve been saying that since 1994.

What about that wealth divide?
When someone criticizes the disparity in wealth, I’m sure there are some who view this as a negative viewpoint. However, critiquing the disparity is not the same as saying everyone should be financially equal. After all, there are those who don’t contribute or strive to do better, there are those born with silver spoons, and then there are those whom by luck, cunning, or genius made riches. Who would not want to be rich? By the way, if you are rich and don’t like it, I can help you out.

The problems are:
1. It is just plain vulgar. That some are making billions while the majority are buffeted by the winds of political-economic-financial-war side-effects and must work multiple jobs, and, well, you know the spiel,… It just doesn’t compute.

2. Ok, so we have the rich class (do they rule?). In our social-economic psuedo-capitalistism this is inevitable. But, why such a large difference? What happened to trickle down?

3. Yes, the pie just gets bigger, blah blah. The thing is, we live in a finite planet, the center cannot hold. Already we are pooping more then our fair share. In my state, for example, the largest man-made structure is the garbage dump!

Further Reading
Mr. Gardner Goes to Washington
Mutual fund managers land on ‘richest’ list
Index fund

999 should be 6789

The Cain 999 tax simplification is attracting attention. Well, it should. In this political climate the major candidates have not been proposing anything bold, just the same phrases, party lines, and lack of answers to specific questions.

But, perhaps the 9-9-9 plan is too bold and as some critics are writing, lays the burden disproportionally on the 99%.

My counter proposal is just as simple, 6789:

• 6% – income on the 99%
• 7% – sales tax
• 8% – corporate tax
• 9% – income on the 1% rich

That is more equitable. Of course, economists and mathematicians can tweak the numbers. Most importantly, these numbers should be part of a feedback system. Why is everything “fixed” when the world is dynamic?

Based on economic performance and quality measures, the whole sliding scale could be shifted up or down. For example, in an overheated economy it could be shifted up, and in a difficult period, like now, it could be shifted down, such as, 5-6-7-8, etc.

Further Reading

• What would Herman Cain’s ’9-9-9′ tax plan really do?
• 9-9-9 Plan
• Cain’s 9-9-9 Plan: Just Like SimCity?
• Fuzzy Tax