Is that what the OP was talking about when they mentioned “garnishment”? A corporate 401(k) plan in which employees are automatically enrolled at a three-percent contribution rate? As you said, that’s not robbing people of their money. I think the idea with such programs is that many people are unlikely to disable the automatic contribution so they will have some money set aside for their retirement. The old way required employees to enroll themselves in the 401(k) plan and many people did not.
Do these religious people consider insurance to be gambling?
A more basic primer on the stock market:
You’re buying part ownership of the company. In terms of gambling, that’s as much gambling as starting your own business, trying a new restaurant, or choosing to drive on the streets with all the drunk a-holes wheeling about. Life itself is a gamble.
That said, there’s basically two ways to do the stock market and one of them is more heavy on gambling.
If you were to buy in to half your buddy’s farm, you’d expect that the two of you are splitting half the profits. And if you buy shares of MegaCorp worth 0.001% of the company then you’d think that you’d be getting 0.001% of the profits. Generally, that’s not true.
Since most investors are putting money aside for way down the line, they usually don’t care so much about the profits. Sharing 5% of the profits of a cake shop doesn’t buy you anything worth having. The bigger interest is that the cake shop uses extra profits to expand, become a national chain, leap across the border, and start expanding into other countries. When you’re ready to retire, maybe the company won’t be able to grow anymore because it’s taken over the whole world, and they’ll swap to a profit sharing model with all the owners. At that point, if you were a 5% owner of a cake global conglomerate, any sort of profit sharing plan would likely cover a basic retirement on the first payment, let alone all of the following ones.
But, likewise, the cake franchise could fail to take off and your owning share becomes worthless. Or if it does start to expand, it’s likely to get bought out by Starbucks or Krispy Kreme, or some other larger company. In that case, your 5% share will get converted into a 0.01% share in the larger corporation and grow with the expansion of that larger company.
This profit sharing thing is known as “dividends”. Some stocks pay dividends, most don’t because they’re looking to use their profits to expand.
If you buy a company that pays dividends, you’re often just converting cash that’s burning a hole in your pocket into an ongoing paycheck that’s worth 2-4% of the total amount that you put in per year. $1m in might only pay you $30k per year. After a few decades you might start to profit but it’s really not that good of a deal. In the best case, the company is still growing and that $30k will increase to $40 or $50k after a decade but you’re really not getting so much value out of it.
Ergo, the biggest haul is when you buy in early, while the company is still growing like crazy. And, generally, rather than waiting for your first dividends, when the company switches over to paying them, usually you just sell the stock over to someone else who still believes that the company has legs at some point and get a single large payout.
Any time you buy shares in a single company, there’s always the non-zero chance that they go out of business, so there’s some chance that you’ll lose everything. But likewise, if you grow a single crop in your farm, there’s a chance that a blight will wipe all of it out. You avoid that risk with diversification. You can do that by yourself or you can buy a fund and let someone else decide how best to diversify.
Likewise, with farming, there’s good years of high yield and there’s bad years of drought, overcast summers, etc. Even if you diversify, there’s whole years and decades where the market is up and others where it’s down. Right now, the market is probably at about where it should be. It’s not a bad time to buy in. But there’s no guarantee that when you retire, it will be a good time to sell stocks. Over the course of a few decades, you’re almost certain to have done well and - if you diversified - you’re safe from complete failure. But it can be good to have backup plans outside of the stock market in case the market happens to be bad right at the moment you need it.
But it is your best option in all cases to make enough money for retirement (short of having your own business and growing it).
Hmmm. It would be interesting to invent a gambling game where you could hold out when the cards were against you, but might have to pay up every so many deals - kind of like having to take money out of the market to live on. Might be fun to try.
Still, what I was addressing was the common complaint in 2008 that people well before retirement age were ruined when the market went down. They only got ruined if they sold, but it seems like a lot of people screwed up. You obviously didn’t, but it worries me.
And I’m pretty sure no one is forced to invest in the 401(K), it is just the default - based on work by Thaler and Sunstein. Thaler has said they screwed up - they set the default percentage for contributions low, so as not to “force” anyone to contribute more money than they could afford, and they saw the amount of deposits decrease as people went to a default level lower than their previous level.
Defaults are powerful things. Organ donation is one controversial example.
Well, yeah, but no one calls it “garnishment”. And I’ve never heard of a 401k being made mandatory.
Sometimes mistakes happen. Like last year my company accidently contributed my entire paycheck for the month of Jan. I suppose it could have been a problem paying my bills if I didn’t keep cash reserves, but I guess the only harm done is I retire a bit earlier I suppose.
I don’t think it’s mandatory exactly but that it’s the default, so that if you really want, you can opt out. And this is based on behavioral economics.
Which is what Thaler got his Nobel Prize for. Not signing people up by default is also a default. Defaults are powerful in that they give information to the consumer about what seems to be the right thing to do. If the default is no 401K contribution, that sends a message that this is the best approach - which it usually isn’t.
By the way, here is the definition of garnishment:
a court order directing that money or property of a third party (usually wages paid by an employer) be seized to satisfy a debt owed by a [debtor]
Good morning everyone. I wanted to say thanks to everyone that has been demystifying all of this finance information. I went into this way more stupid than I thought I was. I’ve been digesting all of this information over the weekend. After having a mild panic attack, I think I have a handle on what I need to know going forward.
Garnishing isn’t what was acutally happening to me - I understand that now. It was the start of this government program to kick off retirement investing. I think my company sort of screwed the pooch explaining it to us. I still don’t know why everyone is doom and gloom here at work, I don’t think they are going to explain it to me because I don’t think that they know how any of this works either.
I’m glad you gals and guys do. Nobody I am around seems to understand any of this stuff. I probably subconsciously have been blocking this all out since we have been treading water since the 2008 financial meltdown. Now that I have recovered, I was probably terrified of the next steps as well. I am not really afraid now, I have information from everyone here. I am still working on the Fidelity issue with “no record” of me, but I have a call scheduled with the Fidelity rep that is supposed to be tied to the company I work with, and they should be able to figure it out.
I’m on the right path of working this stuff out. Thanks everyone.
Bravo! 
Do keep us posted. I’ve learned a lot from this thread. And I know I still have more to learn.
I wouldn’t call you ‘stupid’. You were uneducated about this topic, but guess what? We’re all born 100% ignorant and uneducated. I’d wager that the vast majority if not all of us who responded learned this stuff from somewhere else - college courses, a great book, or a patient teacher.
What would be a stupid path to take, would be denying that you lack an understanding and instead inventing some half baked conspiracy theory and using that as an excuse to avoid engaging with what you don’t understand.
You took the smart path, of educating yourself.
I think the conspiracy theory aspect of it was probably how my little lizard brain inside my “person brain” was taking the situation. I’m normally the rational one around my family and friend groups. That was terrifying to unwrap. I have noticed here lately that I have these various gaps of knowledge that were probably wrapped up in fear. I’m working on them.
Hey man, the Unknown is scary, especially when your family’s financial well being is dependant on things you don’t fully understand. The fear is understandable; good on you for working on it.
@Translucent_Daydream is one of today’s Lucky Ten Thousand
The thing to remember is that this 401k retirement investing stuff is not supposed to be complicated. You save money, your employer contributes money (why? it’s part of your compensation package!), it goes into an account, and you pick what that money gets invested in. Select index funds or low expense fee Target Date funds rather than picking individual stocks or high cost managed funds, definitely nothing weird like options, if they’re even made available to you.
Honestly, your employer’s human resources or benefits departments are idiots if they’re not able to properly explain this program. Part of their job is communicating such stuff to employees.
Well considering the Church of Jesus Christ of Latter Day Saints (i.e. the Mormon church) has an investment portfolio of about $100 billion and about half of it is invested in the stock market, I find these claims hard to believe.
I’m not sure if you’re aware of this or not, but there are plenty of extreme fringe groups who call themselves Mormon who the LDS does a pretty good job of distancing themselves from. They really don’t need to be all that fringe-y - plenty of regular churches have groups that take things a little further than what’s being preached on the pulpit.
I question whether these splinter groups have any money to invest that they didn’t fraudulently scam from the Federal government in a food stamps, medicaid scheme.
Wrong thread
Yep.
We have an annual (semi-annual now that we’re getting close to R-day) chat with our person at Fidelity. They always ask what our risk tolerance is; I tend to say “7 out of 10”. And what our response to a downturn is; I say “I close my eyes, don’t look, and keep contributing”.
Not that one should completely ignore the market, but if your money is invested in a decent mix of investment types, downturns should be temporary.