Morality of 401k Funds

[Dave27360]

What is the the morality of participating in your employers 401k fund? You can’t manually select funds such as Ave Maria Funds. You can only select from a list of pre-approved funds most of which are Target Funds. When researching each of the available Funds all of which include companies that don’t follow Catholic Social or Moral Teaching (Media Companies, Insurance Companies, Pharmaceuticals, etc.). I reached out to the company contact and he (who also identified as Catholic and us familiar with the Ave Maria Funds) said he will keep them mind if the committee wants to make changes to the 19 listed funds. I think it might be remotely sinful knowing that you are investing in companies that don’t follow Catholic Social or Moral Teaching’s. What are your thoughts?

 

[phil19034]

I don’t know if the National Catholic Bioethics Center or other Catholic ethicists have an opinion on this, but here is my PERSONAL opinion.

If your employer is offering matching donations, there is little reason to pass up the matching donations from your employer. You can donate up to the match, and then put the rest of your investments in a fund, like Ave Maria Funds, yourself.

• For example: Let’s say you put 15% in your 401k and work matches up to 3%. If you don’t like your employer’s 401k plan, then, you could always put 3% in their plan and put the remaining 12% in your own Ave Maria Fund (or whatever fund you approve of).

If your employer doesn’t match funds, then you don’t have to use them at all.

God Bless

 

[Cruciferi]

Jimmy Akin explains this:

Moral Investing | Catholic Answers Magazine

 

[JimR-OCDS]

As a retired person, I advise that you invest in a 401K which your employer provides, but also, keep a watchful eye on it !

Don’t get caught in an economic collapse which hits the stock market as it did in 2007-2009, where people saw their 401ks cut in half.

The stock market will always be volatile and quickly move down over things the average person has little knowledge about.

As you get older, investing in high-yield portfolios can cost you your entire life’s savings.

Be frugal with your investments.

 

[Dave27360]

Thank You for the article.

 

[HomeschoolDad]

As a retired person, I advise that you invest in a 401K which your employer provides, but also, keep a watchful eye on it !

Don’t get caught in an economic collapse which hits the stock market as it did in 2007-2009, where people saw their 401ks cut in half.

The stock market will always be volatile and quickly move down over things the average person has little knowledge about.

As you get older, investing in high-yield portfolios can cost you your entire life’s savings.

Be frugal with your investments.

I couldn’t agree more.

There are three rules for investing:

Diversify, diversify, and diversify.

Diversify risk away, down to the point where your risk exposure is a figure you can live with. A good rule of thumb is never to invest in any fewer than 30 companies. 401k mutual funds accomplish this. Fund managers have this down to a science, literally.

The fourth rule, this from Warren Buffett (who seems to know a little about investing), is “don’t invest in anything you don’t understand”.

I have 75% of my 401k in stable value (Treasurys et al) and 25% in stocks of varying degrees of aggressiveness, what I call my “mad money”. I get a ~2% return on my Treasurys, and my “mad money” is so far returning about 20% this year alone. I take an annual disbursement and that is a huge part of what I live on in retirement. If anyone reading this is charitably disposed towards me, please pray to Almighty God that this scenario holds until the 2nd of January 2020

I hope eventually to get to the point where I can invest in Ave Maria or something like that, but keep in mind that no investment is perfect, no investment is entirely pure, and to some small extent, it is almost unavoidably remote cooperation in evil. If you shop at Walmart or Target, you are remotely cooperating in an enterprise that enables contraception (sale of condoms and pharmaceuticals), immodest dress, and indecent entertainment. If you subscribe to Netflix, Amazon Prime, or Hulu, you are enabling, in a very small way, entertainment that runs counter to Gospel values, and so on. We live in an imperfect world. I am at peace with this fact.

 

[Pitcairn17]

What is the the morality of participating in your employers 401k fund? You can’t manually select funds such as Ave Maria Funds. You can only select from a list of pre-approved funds most of which are Target Funds. When researching each of the available Funds all of which include companies that don’t follow Catholic Social or Moral Teaching (Media Companies, Insurance Companies, Pharmaceuticals, etc.). I reached out to the company contact and he (who also identified as Catholic and us familiar with the Ave Maria Funds) said he will keep them mind if the committee wants to make changes to the 19 listed funds. I think it might be remotely sinful knowing that you are investing in companies that don’t follow Catholic Social or Moral Teaching’s. What are your thoughts?

Consistent with your concerns, do you refuse your employer’s health insurance coverage because that insurance pays for contraception and abortion?

 

[Dave27360]

No, but I don’t use the health insurance coverage to provide procedures that is against Catholic teaching’s (such as vasectomy). That is something to consider though I doubt my employer would agree to not cover as too many employees would say coverage is needed. Opting out of employer provided health insurance would put a financial burden on my family and is not feasible.

 

[littlekitten]

companies that don’t follow Catholic Social or Moral Teaching (Media Companies, Insurance Companies, Pharmaceuticals, etc.).

So investing in Media companies & insurance companies & Pharmaceutical companies are morally wrong because you are giving money to those companies, but subscribing to Netflix (a media company) and buy insurance (giving money to insurance company) and buying overpriced snack at a Pharmaceutical company like CVS, thus supporting a company that sell immoral drug, is not morally wrong.
So in short, lending your money (investing) to a not-so-moral company is wrong, but giving your money (purchasing) to a not-so-moral company is not wrong.

 

[littlekitten]

You might be mis-informed on the AVEG fund. I used my IRA brokerage research tool to compare the Ave Maria Growth Fund to a standard Growth Fund (Schwab US Large Cap Growth Fund in this case since my IRA brokerage is Schwab).
The portfolio of the 2 funds seem quite similar. One of the top holding of the AVEG fund is Texas Instrument, which is an IC chip company, and defense industry companies buy and use plenty of Texas Instrument’s product in their defense and offense (weapon) system.
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[Dave27360]

I think that you would have to look at each of the objects separately.

Here is the USCCB Article on Morality
http://www.usccb.org/beliefs-and-teachings/what-we-believe/morality/index.cfm

Object (what we do)
Intention (why we do the act)
Circumstances (where, when, how, with whom, the consequences, etc)

Dividing each object up

Investing in general
Investing in media companies, pharmaceutical companies, or Insurance companies

Buying an overpriced snack from a company such as CVS that also provides contraception
Buying a Netflix Subscription
Buying Insurance

 

[Socrates92]

Don’t get caught in an economic collapse which hits the stock market as it did in 2007-2009, where people saw their 401ks cut in half.

How big a deal this is will depend on your age of course.

 

[Socrates92]

Diversify risk away, down to the point where your risk exposure is a figure you can live with. A good rule of thumb is never to invest in any fewer than 30 companies. 401k mutual funds accomplish this. Fund managers have this down to a science, literally.

The fourth rule, this from Warren Buffett (who seems to know a little about investing), is “don’t invest in anything you don’t understand”.

Interestingly, didn’t Buffett’s style of investment directly contradict the standard ideas of diversification? He put a lot more emphasis on the understanding (and therefore ability to pick stocks) rather than on the diversification that is normally required for us amateurs (due to our inability to pick stocks). If you’re heavily diversified, you don’t really need anything more than a very basic understanding, but then you’re not going to make Buffet-like returns either. What point am I trying to make? Not really sure. I like to ramble sometimes.

 

[Allie1]

I dont think I can bring myself to invest in Ave Maria funds. I am still young mid 30s. Willing to take more risk with my investments. Looking at the expense ratio of the growth fund in Ave Maria fund AVEG has an expense ratio of 0.97%. To put that in perspective for you I currently have an S&P 500 fund with an an expense ratio of 0.04%. That is very large difference in fund fees and will cost 1000s of dollars year after year. To put this in perspective:

The $200,000 in my S&P fund at .04%, I pay $80/year to belong to this fund.

Compare that to the AVEG fund.
If I were to put $200,000 into that fund at 0.97%.
I would pay $1940/year in fees

For me personally switching from what I have now to Ave Maria funds would be increasing my fees by 2325%

I’m still young and still learning about investing. But one thing I have learned is to keep close track of expense ratios. These fees add up and cost you thousands of dollars year after year.

 

[JimR-OCDS]

Yes and unfortunate for those who were forced to retire at that time, because they lost their jobs and were only 62 years old

 

[dochawk]

Don’t get caught in an economic collapse which hits the stock market as it did in 2007-2009, where people saw their 401ks cut in half.

As an economist, I role my eyes every time I see this

Most of those that were “halved” were halved from their peak, which would never have been reached without that level of equity investment. That is, if you put in $20, and it goes to $40 before crashing to $20, you haven’t “lost half” in terms of risk planning; you’ve lost the couple of bucks you could have made more safely but with no hope of an upside.

Someone with 40 years before retirement and a separate prudent reserve would be, to use the clinical term, “nuts” to be less than 100% in equities.

Someone who is retired would be similarly nuts to be at 100% equity.

For those that don’t know, the best investment the day before the 1987 crash, if you were going to hold it for a year without touching . . . was the stock market.

You should certainly have enough for the next “few” years in something where you won’t take a bath when you withdraw it.

I learned about diversification young.

My family thought it would be good for me to learn about stocks by investing much of my lawn mowing money. I chose four, bought one . . . and it tanked, while the other three variously doubled and tripled.

Lesson learned.

I have no individual stocks, and everything is in low fee Vanguard and Fidelity funds, and in TIAA-CREF.

I will start shifting some to bonds and some point, but putting money into even medium term bond fund right now would be reckless: there is a built in loss, even for funds with guaranteed government bonds, as the price of every single bond in the United States will drop as interest rates rise to “normal” levels, where there is no room for gain, save for multi-decades bonds, from falling rates.

Owning a bond that you can hold to maturity is a different story; you’ve locked in, for better or worse, the return (barring failure of the issuer, of course). In a fund, however, you can’t simply hold to maturity, but must take what happens to the bundle.

Anyway, long term is the key to success. I periodically have conversations with the local General Agent for the Knights of Columbus insurance, who is horrified by my approach (as well as my hostility to whole/universal life policies!). I have the advantage, though, of being a little less than halfway through a 75 year plan . . . I really could take a 50% hit tomorrow, or a month after I retire, or whenever, and not be left short (part of the planning . . .). If I could be certain that no such loss is on the horizon for at least 25 years, I’d retire right now . . .

hawk

That is very large difference in fund fees and will cost 1000s of dollars year after year.

fees are the single biggest factor in return! I think my jaw dropped when I sat in on a former client’s presentation from a major insurance company and saw 2% annual fees on their stock funds for 401k!

 

[meltzerboy2]

I think the key word here is REMOTE cooperation, which, I believe, is NOT considered sinful. Otherwise, who knows which goods or services you buy, including for example, performing artists’ albums and the venues of their performances, may funnel funds to causes that are dubious according to Catholic moral values?

 

[JimR-OCDS]

401K’s are investments which build up over a lifetime toward retirement, just like IRAs, a good employer will match dollar for dollar what you put in, but most will match far less if at all.

If you invested $50,000 over 20 years and your employer matched that investment with another $50,000, you had $100,000. That $100,000 should have remained there and grown toward your retirement day.

However, what happened in 2007-2009 is that those 401K’s lost half of the investment, so those who had $100,000 saw it drop to $50,000. It’s still a loss of $50,000 and the years of investing to build it up to the level it was before the crash. 401K’s were not suppose to be a gamble, but that’s what they turned into as many of the 401K investments are in the stock market.

It’s why I say, watch your 401k and when you reach a certain age, you need to move out of the stock market and into a more secure investment, even though it has a lower return rate.

 

[ProVobis]

For those that don’t know, the best investment the day before the 1987 crash, if you were going to hold it for a year without touching . . . was the stock market.

If you can tolerate panic and fear

 

[dochawk]

However, what happened in 2007-2009 is that those 401K’s lost half of the investment, so those who had $100,000 saw it drop to $50,000. It’s still a loss of $50,000 and the years of investing to build it up to the level it was before the crash.

But someone who invested $50,000 in equites over twenty years had far more than $100,000 before the crash, and far more than $1.

OK, so I ran the numbers (you did know I was a displaced Economics professor, didn’t you? )

I took the end of month S&P 500 from January, 1987, to today or so for this month.

This person invested $200 month in it, tax deferred.

The blue line shows the monthly values, while the yellow shows the same amounts invested at a fixed 3%, compounded monthly.

The orange and yellow lines show the same person, but switching from saving to withdrawing at 4% /year (a commonly used planning number, and applied as 4%/12 per month) in July, 2007, at the peak.

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Although his balance does drop briefly below the steam return briefly (2/9 to 4/9 in both cases), he quickly recovers.

Here’s a smaller section, with just 2007 to 2009:

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This needs to be heavily qualified with these being long-term results. Someone sitting on cash that needs to retire in a few years in another situation entirely.

Also note that this timeline includes the 1987 crash fairly early on, late in his second year. So, just for fun (did I mention that I’m an economist? ), the years 1987-1989. In this case, it takes him 15 months to get back ahead.

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If anyone wants to play with the spreadsheet, go ahead and pm me. It’s in ODS, so you can use the free LibreOffice instead of excel. I don’t think I can post it here.

doc hawk

postscript: for those past college age reading this, if you’re not putting at least $200 a month into protected retirement funds, you’re already behind. Waiting until 25 is not an option . . . (let alone 40 or 50. The bulk of my own is from my 20s, even though I put away more in later years–compound returns are that strong!)