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this post was submitted on 19 Nov 2023
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Wikipedia uses a good definition for pyramid scheme:
I don't think that describes a 401k. I don't get money if I convince you to open a 401k. I do pay fees to a company to manage my 401k but I've chosen the lowest fees available to me.
Tell everyone who lost their retirement in a 401k to a big company that it is not a pyramid scheme
Well how do you define pyramid scheme and how do you think it applies to 401ks?
Cite your sources. 401ks are insured against loss. Are you referring to pensions?
Really? Like even during substantial drops in the 2008 crisis? I'm legitimately asking because if this is true then I have some digging to do.
Okay... But the 401k holders aren't being cheated in this instance. They bought an asset that can increase or decrease. It increased for a long time. Then decreased. Then increased again FAR beyond where it was in 2008 just 6 years later. Most investors kept their money in and are doing just fine.
401ks are insured against losing the assets, e.g you own 500 of a particular option, you will always own those 500 unless you sell or that particular asset goes belly up, which is quite rare.
Pensions are a different beast. Closer to the pyramid scheme referenced earlier, and were generally dissolved over the last 40 years by the companies that promised them.
No, no, I get all that. I'm just trying to understand what is meant by 401k being insured against losses...I didn't think that was a thing. I thought any investment whether my personal stocks, 401k, or Roth IRA were all subject to "could disappear overnight kthxbye".
It depends on the assets in your account, but if it's not something covered by the FDIC, chances are it has coverage from the SEC, FINRA, ERISA, others, or several of these.
https://www.aarp.org/retirement/planning-for-retirement/info-2023/safety-net-protections-for-account-assets.html
You're the real MVP. Thank you.
That's not even slightly true. The only differences between a regular investment fund and a 401k are that you don't have to pay income tax on the money you put into a 401k it and you can't withdraw your money before retirement without substantial penalties.
Never said they were special. But they are (generally) regulated securities, unlike pensions. Regulated securities have many layers of protections.
https://www.aarp.org/retirement/planning-for-retirement/info-2023/safety-net-protections-for-account-assets.html