Wednesday, October 29, 2008

Your 401k as a stabilizing force

One thing I have not heard any of the economists talking about is how much our 401ks are actually stabilizing the stock market. My 401k is small compared to most, but I have put thousands of dollars into it, and just about everyone I know who works has a 401k, so we're talking about a very large amount of money being poured INTO the stock market every day.

All that money must have some stabilizing effect on the market because we continue to invest every paycheck despite the fact that the market is in a severe slump. This is a GARGANTUAN stream of cash being pumped into the stock market every day. The finickiness of Wall Street's traders is dampened by our constant, escalating investment.

Ha! I just typed "401ks as a stabilizing force in the market" into Google, and sure enough, here is an article from 2001. But why is it not talked about now? What would this "economic turmoil" be if our 401ks were not buffering the market's erratic swings? As much vacillation as we have seen in recent weeks, it's pretty easy to think that we would've seen a full on crash by now of not for the bedrock-like quality of our 401ks.

So, there's a pretty strong argument in favor of the 401k. Whose idea was that? Darn good one.

Also, our 401ks probably saved the market from a complete crash, and our tax dollars will rescue the banks. Really makes you wonder what is wrong with this system and how to fix it.

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