THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, May 22, 1995 TAG: 9505190011
SECTION: FRONT PAGE: A6 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 74 lines
A headline in Wednesday's business section asked, ``Do Americans know enough to invest?''
Many working folks might answer, ``Are you kidding? Who has money to invest?''
But the point of the story was that more and more working Americans will have to learn about investing if they are to be financially secure in retirement. The reason is that more and more companies are giving employees X number of dollars toward retirement and telling them, in effect, ``If you invest this money wisely, all should go well in your golden years. Good luck. But if you foul up, it's not our fault, and we are in no way liable.''
In the past, most companies simply promised employees a pension of a certain size. An employee who worked X number of years would receive Y number of dollars a month in retirement - no financial knowledge required. That pension system is called a ``defined-benefit'' plan. A federal law enacted in 1974 requires employers to put money aside to make good their pension promises. Beginning in the early 1990s, companies with underfunded pension plans have had to count the amount they were short as a financial liability.
Rather than endure those burdens, many companies have switched to a ``defined-contribution'' plan, whereby the employer is committed merely to contribute a certain amount toward an employee's retirement. If the employee blows the money on hog-belly futures, it's not the employer's fault.
So millions of Americans suddenly are being asked to make smart investment decisions, though many couldn't tell a stock from a bond - and all that's at stake is their entire future.
The American Institute of Certified Public Accountants recently warned about the ``alarming inadequacy of employee awareness'' of the shift in investment responsibility that has taken place.
A survey of 1,000 employees by Towers Perrin, a New York-based benefits consulting firm, revealed that 40 percent of savings-plan participants said they didn't know how their money was invested and a third of them believed there was no risk in investing in bonds, though bond prices rise and fall and defaults occur.
Many of those surveyed were more optimistic about their retirements than their investments warranted. Their parents had retired well, they probably figured, so why shouldn't they?
Obviously money, properly invested, can make a great deal of money. A hundred dollars is to many people what seeds are to master gardeners. The gardener plants the seeds and grows delicious food. Many people can invest $100 and grow $1,000. (Fortunate is the person with a green thumb for plants and money.)
Several years ago, for the first time, money made more money than the combined salaries of all American workers. And much of that money was in pension plans.
But money has wings to fly away, when risks are taken and lost.
So one thing is clear: Now is the wrong time for many employees to stick their heads in the sand. What they don't know about investing can ruin their retirements.
As billions of dollars accumulate in uninformed workers' retirement accounts, con men will be attracted like boll weevils to cotton. Remember rule one: The greater the promised return, the greater the risk.
More than ever, schools need to teach about money. How it works for you. How it works against you. What's risky. What's relatively safe.
Many people would be well-advised to seek professional help in making investment decisions. Also, public libraries contain helpful investment information, and workers would be smart to form investment clubs.
It stands to reason that employers owe it to their employees to hold seminars at which financial professionals give basic investment advice.
May you buy low and sell high. by CNB