By Brett Arends
Senators Pat Toomey, Tim Scott and Peter Meijer have just proposed a bill in Congress that would allow 401(k) plans to stretch beyond traditional investments like stocks and bonds.
And when we say “beyond,” we mean way beyond.
If their Retirement Savings Modernization Act became law, 401(k) plans could start offering not just things like commodities, but even “hedge funds,” “venture capital,” “digital assets” (laughter), and — literally–“any fund, commingled account, or pooled investment vehicle that invests in any investment.”
When I read that in the bill I immediately thought of the most infamous scam during the South Sea Bubble of 1720, where someone fleeced an army of willing suckers by getting them to invest in “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”
OK, so we are now in a lame-duck session of Congress and no bills are getting passed any time soon. Toomey is about to retire. And so far this is just three senators. But these ideas keep knocking around in D.C.
The senators, announcing the bill, say it would “bolster Americans’ retirement savings by allowing workers to diversify assets.”
“This reform will open the door to higher returns and a more secure retirement for millions of Americans,” said Toomey.
“This bill would modernize retirement plans to ensure they can provide diverse investments with higher returns,” said Scott. He added: “American workers and their families deserve to go about their lives with peace of mind, knowing their hard-earned money will be secure when they choose to retire.”
If I didn’t know better I’d think they were joking.
Peace of mind?
More secure retirement?
They’re talking about “digital assets,” which means things like bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.29% , other cryptocurrencies, and “nonfungible tokens” which were 2021’s big joke. NFTs are basically screenshots, farcically “valued” at tens of millions of dollars.
Coinmarketcap.com reports about $2 trillion in losses on crypto tokens since the peak last November.
Sure, there are still die-hards out there who think the cryptocurrency meltdown is just the “crypto winter,” with a spring due to come any day, but how many of them are left? Bitcoin might have value if it were the only digital currency in the world, but coinmarketcap also reports that there are 21,000 competitors.
As for NFTs: Yes, they were very funny, but is anyone still laughing?
Why would we want America’s retirement money blown on this stuff?
Meanwhile venture capital, private equity, and hedge funds often produce absolutely terrific financial returns—so long as you are one of the people actually running them, and pocketing the huge fees.
The math on hedge funds doesn’t add up. Yes, of course some of them will produce superior returns, in the same way that if a million monkeys went to the racetrack a few of them would end up winning.
But there is no reliable way of knowing who they will be in advance, let alone if there is any skill involved.
If I were in the venture capital, hedge fund or private equity industry, I’d want to get access to the $7.3 trillion in assets sitting in America’s 401(k) plans too . And I’d be really pleased with senators who tried to help me with that.
As for the rest of us: We are, of course, free to gamble with money outside our retirement accounts and pensions. If we are going to use our 401(k)s for exciting wager, why stop at NFTs and “Ponzi coin?” Why not lottery tickets? Should I be able to take my 401(k) to Saratoga Springs to wager it on the horses? How about taking it to Las Vegas to bet on the spin of the wheel? Why not? It’s my money. And these are certainly “diversified” ventures. There is no known correlation between the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.12% and the spin of a fair roulette wheel. The coefficient of correlation is 0. The market could tank, and I could double my savings on “black.”
Where’s the problem?