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You’re on your own

There was a time when going to work for a major U.S. corporation set Americans on a path to the middle class with secure retirements.  No  more.

Thousands of U.S. companies have swapped traditional pension plans for 401(k) plans, effectively shifting the risk of a secure retirement to employees’ decisions.  Last week, General Electric joined that list, moving 20,000 U.S. employees effective 2021 to the company’s 401(k) plan.  GE’s pension plan has been closed to new entrants since 2012.

IBM closed its pension plan to new hires in 2005 and froze benefits in 2008. Boeing Co. closed its pension in 2009 and froze benefits in 2016.

In 2017, only 16 companies in the Fortune 500 offered traditional defined-benefit plans to new hires, down from 238 in 1998.  By 2017, 42% of Fortune 500 companies with defined-benefit plans had frozen them in some way.Under traditional retirement plans, the companies are responsible for seeing to it that funds are available for making monthly retirement payments.  No so under 401(k) plans.

Under 401(k) plans, the employees have to decide where to invest.  Most go with stocks; few are in bonds, which rise in value as interest rates fall.  Most investors do not know that.  At the moment, though, 401(k) plan holders have broad smiles on their faces as stocks are flirting with all-time highs.

However, stock prices do not always go up.

Although 2016–2018 saw solid rises in stock prices, since 2018 stocks have not appreciated much.  In the fall of 2018, stocks suffered a precipitous decline, which resulted in the Powell Pivot, meaning Fed Chairman Powell reversed course from his four rate hikes in  2018 to talking about lowering rates in 2019.  Stocks again marched higher, and Powell followed through with two rate reductions.  We may see two more this year.

However, will stocks go to new highs in the face of growing signs of a recession in not only the U.S. but worldwide?  Should we see a contraction like in 2008-2009, gold and silver will do very well as central banks around the world again embrace loose monetary policies.  When you’re on your own, going with two investments that have been valued in all civilizations for thousands of years could be the right move.


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