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Why Target Retirement Funds Cannot Substitute Stocks (Part 2)

23 November 2007 - Features - Editor

Why Target Retirement Funds Cannot Substitute Stocks (Part 1)

Stocks and Discontinuities

Stocks are versatile as instruments of accumulating financial powers. Risk is inherent in their ownerships, but the hazards can be managed as well by individual domain experts, as by general whiz kids! Stocks require daily attention on all working days, but the potential benefits are at least as significant as any other daily chore. Liquidity is an important dimension of stocks, allowing us to make rapid adjustments to shifting realities.

Globalization is an additional factor in favor of stocks because the present dispensation of world affairs is very likely to change entirely by 2030 and 2045. Target retirement funds plan to bring in investments from abroad back to the United States, as retirement years approach. This makes sense for yesterday, but will it be relevant if the dollar loses its dominant position for the rest of this century? A retirement fund that can beat inflation and meet the future health care costs of old age requires the flexibilities of assertive trading in stocks.

Tax Considerations of Investments in Stocks

Taxation is one of the most dynamic aspects of the economy. Relief provisions for the effects of Hurricane Katrina and California fires could not have been foreseen before the disasters occurred. Future Presidents may go much further than the present one in granting exemptions and special provisions for small business owners. Governance measures may become more stringent to discourage extravagant severance packages for errant executives, and hedge fund owners may exert increasing influences on policy matters in return for their campaign funding initiatives. Deductibles for green energy use will probably grow, but administrations between now and 2045 may behave very differently from the Washington of today. Stocks offer more degrees of freedom than passive funds in responding to changes in taxation rules and national objectives. It should be borne in mind that large increases in levies on certain types of income are inevitable once we have a government committed to fiscal discipline similar to what Ms. Thatcher achieved in the UK during the 20th century.

Visit our forums and discuss your views with respect to target retirement funds. When do you plan to retire and how much of your portfolio have you moved from trading in stocks to passive funds? What are your visions of 2030 and 2045?

 


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