Imagine you hear a politician proposing an immediate 50% tax on the income from your 401k? The proposal stipulated that tax has to be paid now, regardless of where you are in the retirement process. What would be your response? Once you got past the disbelief and possible anger would you look for ways to avoid that tax? If you found a way, how long would you wait around before you acted?
401k NEWS FLASH!
This proposal is not being proposed, it has already happened. That is exactly what the Federal Reserve has done to your 401k by keeping interest rates artificially low. Why has this been done? I am not sure who knows or even who can answer that question, but a partial response is that the Fed has done this to prop up asset prices. A side consequence has been a rising stock market.
In a rare show of candor, Federal Reserve Vice Chair Stanley Fischer told Bloomberg’s Tom Keene who had asked about the impact of negative interest rates on savers (emphasis mine). Fisher responded: “Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that, and we have to make trade-offs in economics all the time, and the idea is, the lower the interest rate the better it is for investors.”
Sounds like to me The Fed has no interest in helping savers earn a decent return on their bank deposits or money market funds. Dr. Fischer thinks “decent equity prices” are great and lower interest rates are good for investors.
In any case, the result has been nearly a decade of return-free risk for millions of savers and investors. Those living off of fixed-income portfolios—never mind simple savings accounts or CDs or 401k’s—have grown more desperate as each holding matured and couldn’t be reinvested at a decent rate.
The bottom line? The Fed is willing to trade off your returns on fixed-income for a rising stock market. And that is one of the biggest reasons why interest rates will not be going up any time soon. A rise in interest rates will be met with a massive backlash from the markets.
A few questions to consider about your 401k’s:
Are you ok with paying this unseen tax on your 401k which has been imposed by the Fed?
How long do you want to continue to pay that tax on your 401k?
Could that tax get even higher?
Could I benefit from this situation while others are suffering? (The answer is yes. Check out how!)
Can IBC help me avoid these taxes?
If you want to find out how you can get better results than your current investments (401k or anything) click here where I am doing a FREE webinar and I will teach you this topic more in-depth.