Government, Policies, and Wall Street...

We often forget how government policies and Wall Street impact our lives.

One of the biggest adjustments in everyone's lives was the shift towards everday American's funding and managing their futures. Policies have created new instruments such as 401K plans, 529 plans, and individual retirement accounts to move Main Street America into funding and managing their family's future. In the past, you may have had a pension that rewarded your hard work and productivity but now that is often not the norm. All three instruments mentioned above empower you and I, as investors, to take full advantage of what the stock market offers. However, the downsides to these instruments are there are often limited investment choices, cumbersome rules, and not enough financial planning advice. This is very evident as we see sharp declines in the current market. 401K plans, 529 plans, and individual retirement accounts are the very things that were created to ensure our cushy retirement and reduce the burden of the rising costs for college.

Due to the fact that these instruments are so important to so many people, you would like to believe that we would be equipped with all the "tools" to make safe, sound, and educated investments. However, there are a few potential conflicts that lay underneath the surface:

Limited Investment Options - 401K plans are managed by your employer and often there is a slight conflict because an employers main goal is to manage costs and meet quarterly earnings projections. An area that is often adjusted for costs is the management and availability of "OPTIONS" given to you and I to make the necessary choices to fund our retirements. Hank Paulson often talks about needing the necessary tools to assist the country in getting out of this crisis. Well I want to throw one OPTION out there, why not give each of us unlimited OPTIONS to manage our retirement portfolios. I have a standard brokerage account and the options available to the investing community are different that the limited choices in my 401K plan. I have the ability as an investor to make money or simply hedge my portfolio during periods when the market is down...however those choices are not made available to me in my 401K plan. And if you are wondering can it be done efficiently...the answer is yes as Exchange Traded Funds (similar to mutual funds) can be used for that purpose.

And to assist us with these new OPTIONS, I would recommend that additional financial education be given to assist American during periods where there may be many questions. Of course, you can always turn to websites and blogs like this for everyday questions.

Million Dollar Question - Why do you have this view?

Well I have noticed that as an investor, when I began blogging almost two years ago about the beginnings of a RECESSION, I shifted my portfolio to a direction that was heavily weighted in Technology and Dividend companies and recommended that you do the same. However, I didn't have the option in my 401K plan and often in my IRA account to make this type of decision. And things were not yet as such a difficult state as they are now, so I left my accounts unchanged because moving to cash accounts (Money Markets and Treasury Bills) would have been to drastic. But when the market turned negative very quickly, I did not have the OPTION to use Exchange Traded Funds to benefit from funds that make money when the market is negative. At a minimum level, I would like to use these funds to hedge against what I have just witnessed for the last month. And how critical is the availability?!?

Well I want to offer an example: Most of our portfolios are in line with the markets and are down roughly 30-40%. Look at my PORTFOLIO TRACKER and over the span of 1 and 1/2 days I recommended picking up the Exchange Traded Fund, DXD. DXD goes up every time the Dow Jones goes down and it doubles the amount that you make during that period. So the markets each day were down on average 5-10% and buying the DXD could have returned in excess of 20% while the stock market was declining! This is a great hedge until the markets return to normal, however, you do not have that option in your 401K plan but I do as an investor. As government uses this opportunity to reform a hard look should be given across the board at ways to improve the process.