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Caveat
on retirement funds
WHEN someone tells you not to put your eggs in one basket,
do so right away. In the investment arena where future value
is a function of rate and time, the only universal truth worth
embracing is diversity amidst an ocean of risks.
Exploring the depths of the Enron bankruptcy in the United
States brings us to the tragic fate of all the employees who
were forced out of their jobs. More emphasis, however, on
the fate of the displaced employees' 401(K) that were invested
in the company's own stocks. All eggs in one basket, so to
speak.
In the U.S., the employees are enjoined to share a percentage
of their salaries to a retirement fund known as the 401(K.)
Employee contributions are incorporated with the employer's
contributions and invested in different interest-bearing investments.
The 401(K) supposedly becomes the basket by which an employee
collects his eggs until they hatch into fully-grown funds
when retirement day beckons.
Enron was an energy trading giant and the 7th largest company
in the Fortune 500 until its bankruptcy. It registered stellar
stock performance during its heyday years such that 100% of
their 401(K) funds were invested in Enron stocks. The company's
steep ROI growth was fundamentally a hot buy. One employee,
for example, bragged a $500,000 market value on his retirement
fund running 15 years of contribution.
But as the company went into complex acquisitions and shady
deals, their books were likewise window-dressed, hiding the
actual declining value of Enron stocks prices. The $500,000
market value of the same employee nose-dived into a measly
$22,000 on bankruptcy day.
This should be a hard lesson for both employers and employees
around the world that retirement funds should be invested
with prudence, taking into consideration foremost the interest
of the beneficiaries, apart from the complex capitalization
needs of the company. Simple investment ethics dictate that
funds should be spread into different investment outlets in
order to spread future risks.
Enron helped their employees come up with the eggs but it
also crushed the growing brood by grouping them all together
and making them too close for comfort. Their bullheaded corporate
governance has taken its toll not just on their own business
but has inevitably stricken the core of employee welfare.
Nowadays, being employed in a huge company does not necessarily
mean a worry-free future. In a very volatile market, size
does matter. The bigger the player, the bigger the fall. For
hardworking employees who want to secure their future, vigilance
is the key. Well, the proverbial eggs in the basket is worth
one's attention, too. *
Renzi is a graduate of Economics with a Masters
Degree in Business Administration from the University of St.
La Salle. While working full-time in the Trust & Investments
Division of one of the 10 largest banks in the Philippines,
she dabbles into writing and does mountain biking as her weekend
hobby. You may email the author at renzijuarez@philippinestoday.net
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