Why Subaru owners are good 401(k) investors (column)

[Bobaru]

This column ran yesterday in our local paper (Contra Costa Times) business section.

It actually makes some sense, I think!

The gist of it is that the traits that correlate with Subaru ownership also correlate with reasonable investment sense, and planning for the future, etc..

The author (a retirement/financial columnist) doesn't say if HE owns a Subaru or not...

Butler: Why Subaru owners make good 401(k) investors, too - ContraCostaTimes.com

I posted this in the 2010 Outback forum, but then thought that it would be of more general interest to Subaru owners, and so have reposted it here.

[subiesailor]

Well that pretty much fits the 4 subaru owners in my family. Paid cash - could have bought a $70,000 MB but saw no value in it and all 4 of us max out our 401K contributions every year with the plan of retiring long before reaching 70. All of us replaced 10+yr old cars with the new subarus also.

Funny the sales guy told me he has gotten to the point he almost sees no reason to run credit checks on the subaru customers but working at the shared Chevy dealer ship he said the Chevy customers 8 times out of 10 shouldn't qualify for a used car ha ha.

[fatabbot]

Because every single model has four-wheel drive, snowboarders have made it their ride of choice if sufficiently rusted out and held together by bumper stickers and duct tape. What could explain, however, the attraction of the car at the other end of the spectrum — people who have their financial act together? Could there be a connection between these people and the thought process that leads to healthy retirement account balances?

Those words describe perfectly the person who successfully masters his or her 401(k) opportunity. It's not the dollars themselves piling up as a product
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of self discipline. Instead, it's the smug satisfaction from knowing that an opportunity has been seized. "Freedom to go where you want when you want?" That's certainly the case when you're sitting on a six figure 401(k)/ IRA balance instead of stuck in a job and living from paycheck to paycheck.

I think the conclusion is accurate, but how he gets there probably isn't (although I'm a noob to Subaru, so take it FWIW). I'd venture to say that most Subie owners are considerably more conservative (not in a political sense) with their finances to begin with and are looking for a car that A) provides value, B) Not loaded to the gills with needless frills and C) is not pretentious.

Not because the "weekend experience" is similar to the "saving for retirement experience". It's a mindset of relative frugality/modesty.

[Ruperts Trooper]

For the benefit of RoW contributors - what is 401(k) deposit/contribution?

[arthuruscg]

401K is a retirement account/ program

[dakboy]

Originally Posted by Ruperts Trooper

For the benefit of RoW contributors - what is 401(k) deposit/contribution?

401(k) is the section of the IRS tax code which allows a person to invest pre-tax dollars in an account for retirement. You can't take gains from the account until you're 59 1/2 years old (IIRC), but you can borrow some of the "principal" from the account for certain qualified expenses (like buying a house), as long as you repay it like any other loan. Employers also have the option to contribute to an employee's 401(k) account - typically matching up to a certain percentage (for example, my employer will match 3/4 of what I contribute, up to 3% of my gross salary - so to get the full match, I need to put in at least 4%).

One of the big benefits of contributing to a 401(k) is that it lowers your taxable income - depending on where you fall on the tax tables, if you contribute 5% to your account, your take-home pay may actually be a few dollars more than if you contribute 3% because your taxable income falls into a lower bracket (this actually happened to me once).

See also 401(k) - Wikipedia, the free encyclopedia

[Ruperts Trooper]

Thanks - we have something similar in the UK - main difference is that it can't be borrowed from but up to 25% of the total can be withdrawn tax-free at time of retirement.

In that Butler link the words "Pay cash, keep cars longer and buy less than you can afford — then invest what you save" sums up my strategy exactly.

[driveby]

Originally Posted by Ruperts Trooper

For the benefit of RoW contributors - what is 401(k) deposit/contribution?

401(k) is an institutionalized financial program whereby a large number of middle-class Americans provide a significant percentage of their income to "trusted financial institutions" to manage as those institutions see fit...with potentially disastrous results for the individual.

This program relies on a number of tenuous assumptions regarding future US tax law, market trends, and inflation...all of which are beyond the ken of the typical individual investor.

In a nutshell...401(k) provides a government-approved buffer for financial institutions...a false sense of future financial security to many individuals who contribute their income...and a ready source of bonuses and salaries to bank employees.


-Jeff

p.s. I also buy all my vehicles with cash.

[Ruperts Trooper]

Originally Posted by driveby

401(k) is an institutionalized financial program whereby a large number of middle-class Americans provide a significant percentage of their income to "trusted financial institutions" to manage as those institutions see fit...with potentially disastrous results for the individual.

This program relies on a number of tenuous assumptions regarding future US tax law, market trends, and inflation...all of which are beyond the ken of the typical individual investor.

In a nutshell...401(k) provides a government-approved buffer for financial institutions...a false sense of future financial security to many individuals who contribute their income...and a ready source of bonuses and salaries to bank employees.


-Jeff

p.s. I also buy all my vehicles with cash.

That's down to regulation surely, if the selling of these products is badly controlled then unsuitable investments will be sold.

In UK, we have a Self Invested Pension Scheme (SIPP) where anyone can make contributions from pre-tax earnings and select the shares or unit trusts themselves - some providers charge handsomely for using this but others discount the bid-offer spread and rebate their commission. Share investment does require detailed knowledge but unit trust investment is easier for the lay-person to understand.

The recent world recession has hit share/unit prices but dividends are holding up very well - indeed the low share/unit prices give an excellent opportunity to "buy low" with any excess dividends.

[driveby]

Originally Posted by Ruperts Trooper

That's down to regulation surely, if the selling of these products is badly controlled then unsuitable investments will be sold.

Not regulation, but education.

We will never regulate the exploitation of ignorance or laziness. I don't condone that exploitation, but I understand that it is, evolutionarily speaking, somewhat positive for our society.

BUT there is a better way. We can try to replace (financial) ignorance with knowledge, and we can attempt to motivate the (financially) lazy.

This is a very worthwhile goal IMO, because most of the evil in this world is paid for by "dumb money"...money that has been "contributed" to accounts that are invested for reasons so far removed, and so far abstracted, from our real-world priorities that it ends up hurting us in the long run. For example, the Wall Street system has forced American car manufacturers to design cars with a 5-10 year average lifespan, when they could easily build cars that last for 20-30 years. Winner: bankers & executives. Losers: millions of car owners, the environment, and finally the employees of the companies that build these crappy cars.

Americans who "contribute" to a 401(k) account typically do not play any active role in managing their "contributions". Yup, the payments into these accounts are called "contributions". You'd think that more folks would read the dictionary definition of "contribution" and catch the hint...but they don't.

I don't think this is uniquely American. It may be emphasized because the American banking system is particularly aggressive & pervasive & amoral. But...I know Australians with "superannuation" accounts who behave the same way. And I'd bet the situation is similar in other countries. The "middle class" is so busy making their money and raising their families that they leave their "contributions" to the "experts".

So most folks with 401(k) accounts buy into the simple programming that says they will make more money by deferring their taxes, and they abdicate their investment power to "funds" that have their own goals. The fund managers can then make risky bets and paper constructs with this pool of "dumb money", because they bear no risk. They will be paid if they lose, and they will be paid hugely if they win. (Actually it turns out, they will also be paid hugely if they lose. Witness the $700,000,000,000 TARP "bailout". Yes, those are 11 zeros behind the 7. It makes the BP oil spill look like a coffee spill.)

It's a terribly broken system. The best way to fix it, IMO, is for individuals to pierce the veil of financial programming, hold and invest their own money in businesses/resources that they personally endorse, and shun politicians who are funded by the banks. Pipe dream? Maybe. But I think this might actually happen in the next decade or so. The current system waaaay overextended and is now a huge house of cards. Mark my words, June 12, 2010.

OK, back to car talk.


-Jeff