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Mutual Funds vs Private Pensions
poshniallo
Registered User regular
Registered User regular
Hi
I'm diving into the shark-infested waters of investment - not because I'm rich and have lots of cash lying around, but because I need to sort out money for my old age.
My basic situation: I am married, 37 years old, no kids, and I live in Japan (permanently). The Japanese state pension scheme is in big trouble, and I'm not convinced it will get any better. At the moment, I work for a foreign company who use (semi-legal) dodges to avoid having workers pay into the Japanese pension system. One of my goals is to be a self-employed translator, so company pensions are out (or rather, in Japan, the employer-contributed state pension).
To be honest, I've started to think that the whole idea of pensions, whether private or public, is based upon higher rates of mortality than we have in rich countries nowadays. The greying of Japan, Europe and the US means that any pension system is going to have so much stress put on it that it will collapse.
So I've started looking at other methods of investment, e.g. mutual funds. Not that I know much - I barely know the basics of what one is, and finding unbiased info on the dangers of any financial service is very difficult.
So my basic questions are:
Do you trust your state pension?
Do you think private pensions are really a safe place to put your money?
Are mutual funds (e.g. Goldman Sachs funds) a comparatively good investment, especially over a long period?
What are you doing for your retirement? Even though most of you live in the US and Europe, the problems are the same, I think.
Thanks in advance - I'm really lost here.
I'm diving into the shark-infested waters of investment - not because I'm rich and have lots of cash lying around, but because I need to sort out money for my old age.
My basic situation: I am married, 37 years old, no kids, and I live in Japan (permanently). The Japanese state pension scheme is in big trouble, and I'm not convinced it will get any better. At the moment, I work for a foreign company who use (semi-legal) dodges to avoid having workers pay into the Japanese pension system. One of my goals is to be a self-employed translator, so company pensions are out (or rather, in Japan, the employer-contributed state pension).
To be honest, I've started to think that the whole idea of pensions, whether private or public, is based upon higher rates of mortality than we have in rich countries nowadays. The greying of Japan, Europe and the US means that any pension system is going to have so much stress put on it that it will collapse.
So I've started looking at other methods of investment, e.g. mutual funds. Not that I know much - I barely know the basics of what one is, and finding unbiased info on the dangers of any financial service is very difficult.
So my basic questions are:
Do you trust your state pension?
Do you think private pensions are really a safe place to put your money?
Are mutual funds (e.g. Goldman Sachs funds) a comparatively good investment, especially over a long period?
What are you doing for your retirement? Even though most of you live in the US and Europe, the problems are the same, I think.
Thanks in advance - I'm really lost here.
I figure I could take a bear.
poshniallo on
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I do not trust the Social Security system (I'm in the US). I just got out of college, and there is no way it will be able to take care of me when I retire in 45 or 50 years. I don't know about pensions, but I'm saving up to put money into an IRA (specifically a Roth IRA, but regular is good too.)
If you're unfamiliar with them, basically you put in a max of I think $4000/year, which you essentially can't touch (without huge penalties) until you're in your 60's. Because the company knows it has your money for decades, you get crazy rates of return, plus a lot of companies also manage mutual funds and so put your money in those (at your discretion) so you get even higher rates of return.
The basic difference between the two kinds is that in a regular IRA, you put in pre-tax dollars, but the money is taxed when it comes out; in a Roth IRA, you're taxed on the money before you put it in, but it's tax-free when you take it out. Really either is a great choice.
I'm sure mutual funds are probably a decent idea, but I honestly don't know enough about the stock market and investing and such to get involved in all that now. Hopefully some other people will give more ideas and info though.
What you need to do is sit down with an investment advisor and talk about your options with someone who's got all the information about your situation.
In Canada, you can put money into it up to a certain maximum / year and deduct that money from your taxes. So it can be super good like that. But the main thing is that in Canada anyways you can decide how money inside the RRSP is allocated. You could put it all into Bonds if you wanted or Mutual Funds or whatever. For retirement plans you don't want Bonds but anyways.
The idea of the IRA/RRSP/Wahtever you ahve in Japan is a place for your money to grow at significant percentages (North American stocks and real estate appreciate about 8-12% a year for 20+ year periods) without having that growth count against your current income taxes.
Try to find one of those. But sit down with a real financial planner who operates in your country and state/province/town, that's the best idea for sure.
State Pension: I trust that the the portion of payroll checks going to the govt to support social security will be ever increasing, and I'll likely never draw or if I do I probably won't draw enough to cover much more than property taxes and homeowners insurance. Unless you mean govt. pension, in which I cannot participate, but if I could I definitely would (e.g. if I were in state dept, postal employee, military, etc.).
Private Pensions: there are few I would participate in if I were an employee if I had the option to. IBM, GE, Boeing, Microsoft, the better financial houses (I don't know if these companies even have pensions, but they'll be around 30 years from now).
Mutual funds: Compared to what? Having a couple of mutual funds (almost any of them) would be better than having all your money in one stock, or all in real estate, or all in gold. Mutual funds can allow you to diversify with less investment funds, if you have $6K to invest, you can stick that in one or two mutual funds and have much less risk than owning 10 shares of google. If you're looking at mutual funds, also look into ETF's (particularly closed-ended) and index funds. When soliciting advice on mutual funds, understand that some funds have exorbitant front end or back end loads (management fees are normal, but some loads amount to commisions).
Sectors I would almost always have some exposure to (in no particular order): Large Cap U.S., Small Cap U.S., International Large Cap, Emerging Markets, Energy, Financials, Real Estate, Cash. Also a few longshots (e.g. I might have some shares of a company with a lot of exposure to Hydrogen Fuel Cell tech, Batteries, Solar Cells, or water purification, because of a personal bias, i think this kind of tech is going to become very important within my lifetime) this investment has a good chance of going to zero, but has some possibility of becoming very valuable.
Have your retirement funded from multiple sources. If you participate in your company's pension program you should also have an IRA-type account or a taxable account with independent investments so you have something funding your retirement that is not linked to the performance/existence of the company for which you currently work.
I'm in the U.S. and my retirement investments are probably on the conservative side.