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Pension plans, retirement dreams and horse-drawn carriages

Many investors who are seeing their retirement income shrink, says this U.S. advisory, must understand the risk that goes with rewards.

For all those who have been saddled with the name baby boomer, some gloomy questions are looming.

What’s happening to my retirement money? Will I have to put that nest egg back together? And why can’t I smell the inside of a blacksmith shop?

Well, we’ll get to that last one in a moment. But the problem is clear. A lot of people have seen a lot of invested money dwindle down over the past six months.

Here’s how Mr. Max Bowser puts it: “Seventy-five million baby boomers are pulsating with happy thoughts of retiring to paradise. Lazing around the house. A lot of fishing, golfing, tennis and taking trips to exotic places — or not so exotic.”

Now their thoughts are not so happy, he writes in The Bowser Report. This specialist in microcap stocks examines their plight through the window of (401)k plans.

These plans are American, of course, but they have their Canadian equivalents. And in truth investment and pension plans everywhere are suffering, whatever alphabetical or numerical shorthand they go by.

Mr. Bowser finds that at least part of the problem lies with the inability of investors to look clearly at the very nature of investing.

He also finds some snacks that might make a good investment. But first we’ll go back about 250 years.

An army in Williamsburg

Near Mr. Bowser’s headquarters in Newport News, Virginia is Colonial Williamsburg, the pre-revolutionary stomping grounds of such American icons as Patrick Henry and Thomas Jefferson.

Here, says the editor, “you are transported back to the 1700s. You’ll see people walking around in old clothes. You can take a jarring ride in a horse-drawn carriage and smell the inside of a blacksmith shop.”

Williamsburg should have an onslaught of sight-seeing retirees, “an army bigger than the Allied Forces that invaded German-held Europe during World War II.”

But now this may be an army without money, he adds. Their (401)k plans have taken a mighty hit, mired in a bear market. “This wasn’t supposed to happen. Don’t stocks go up uninterrupted indefinitely?”

(401)k plans, which were mandated by Congress in 1978, are retirement investment savings plans tied directly to one’s workplace. Employees may have part of their wages paid directly into the plan. Most plans are “participant-directed,” so the employee can choose specific investment options. Some of the assets are tax-deferred.

And now those plans are down in the muck like so many others.

Higher rewards, and higher risk

Mr. Bowser cites a recent Wall Street Journal study of these plans by Ms. Eleanor Laise. “The gal did a good job,” he says in his inimitable way.

When (401)k plans were added to the Internal Revenue Code in 1978, they did not immediately have the impact of, say, Canada’s new Tax-Free Savings Account.

“Initially, many employers saw them as a supplement to company-funded defined-benefit plans and Social Security — and a way for executives to stash some of their compensation in tax-deferred accounts,” wrote Ms. Laise.

At many companies, if employees contribute, the company kicks in some money as well. But fewer and fewer are doing that now.

One crucial result of (401)k plans should not be overlooked, Ms. Laise insisted. The legislation “almost marked the end of professionally managed pensions that provided guaranteed benefits to retirees of corporations.”

In other words, more and more Americans were willing to bypass a sure thing for higher rewards, and higher risk.

Some 50 million Americans have (401)k plans with $2.5 trillion in total assets. But now these plans are the victims not just of the bear market, but also of the fall of home values and shrinking consumer credit.

The problem, as Mr. Bowser sees it, is that many people didn’t really understand the risk they were taking to get the promised rewards.

They ignored three basic facts of investing: 1) Stocks go up and down. 2) All of one’s retirement capital should not be in one investment category. 3) Stocks will recover.

And there are still some tasty stocks out there to recover with, he insists. His Featured Company of the Month is one.

Snacks in the Old South

Golden Enterprises (NASDQ-GLDC) makes a host of salted snack items — potato chips, tortillas, corn chips, cheese curls, onion rings and so on — under the name Golden Flake.

The name may not ring a bell. That’s because the label appears on the shelves in Alabama, Tennessee, Kentucky, Florida, Georgia, Mississippi, Georgia, North and South Carolina, Missouri, Arkansas and Texas. In short, the old Confederacy.

The company’s not as old as the Confederacy, but it did set up shop in Alabama in 1946. In a highly competitive field, it has held its own very well with the quality of its products, Mr. Bowser tells us.

And yes, it has a (401)k plan, plus an employee Stock Ownership Plan and full medical coverage, which has helped to create a long-time, loyal workforce. It has also paid dividends longer than any of the microcap stocks Mr. Bowser has ever recommended.

Not least, it is a small-scale version of those “defensive” food stocks that help investors reduce risk. The shares have been rising of late, and trade at $2.33.

Risk is the real story, in Mr. Bowser’s opinion. Investing for retirement is not the cakewalk it was made out to be when the stock market was riding high. You just don’t get the rewards without the risk. That’s life.