Pension funds and Profit Taking

[Tadpole]

First to JG, CROAKKKKKK.

I have a question about being a mutual fund, retirement account holder.

Most offerings in retirement plans are funds that are evaluated after market close. At the minimum a participant can pull out of a crash only at market close. Most accounts have a one to two day delay on executing a request to move money on top of this. Some people say they cannot reallocate; only their company can. Since the after hours and market timing problems, fund managers have also added one to three month hold periods. If money is deposited and moved within the hold period, a stiff fee is encountered. I do not want to get diverted into whether this is good or bad. I want someone simply to answer the following questions without too much laughter.

After the market falls, who got the richer? (Somebody sold something.)

If investors are unequal in trading, what prevents the siphoning of retirement pension funds as they infuse the market?

 

[charlie]

Hey Tadpole, I guess bottom feeders have the best
chance of winning big if they actually buy at the bottom.

OTOH, young investors in the accumulation phase
should rejoice at the chance of "buying low" even
if you miss the "bottom". Long term future returns
are inversely related to the market P/E ..... the lower
the P/E the better.

IHMO, the things that makes investors unequal
are ignorance, common sense, apathy, emotion
and trading costs for small investors.

Cheers,

Charlie

 

[mickeyd]

I don't quite understand your question, however I notice a couple of incorrect assumptions in your post.  All Mutual Fund (MF) account requests must be acted on at the end of the business day that the request was received. There should never be a one or two day delay. Also, If you are a MF investor you can reallocate at any time, and the company can never reallocate without your direction and approval.

 

[Tadpole]

As far as requests being acted on at the end of the business day. That may be true but my fund has a rule that only requests entered by 11 am are guaranteed to be acted on by the end of the day. So I have alway thought of it as 2 days max because of that. The company control is something I have not personally experienced but have been told by others so it is second hand and not necessarily true.

As far as my questions go, I guess I just am no good at asking them so I will give an exaggerated (and admitted absurd) example.

Suppose a simple mutal fund of two companies A and B. Early in the day, news comes out that company A faces a multi-zillion dollar law suit. Owners of company A dump their shares and all ex-owners put the profit in a money market. Where does that leave holders of the mutal fund?

(I requested that you not laugh as loud as you feel like right now because it takes nerve to ask a question like this. Shhhhh)

It just seemed to me if people were "profit taking", retirement accounts were left behind.

I finally took the plunge and rebalanced our plans which resulted in massive changes in my husband's account. All the funds I moved into had this redemption fee. When I search to find out what that was, I found out that once I put the money in it had to stay in that account for a minimum of 30-90 days or a 2% redemption fee would be charged.

 

[fln]

Not quite sure I understand your concerns but thought I would clear up one item upfront regarding retirement plans offerred by companies:
- 401K plans offer an array of mutual fund options, some are retail mutual funds and others are institutional. Most 401Ks ' exchanges and redemptions are effective on the same day providing that you submitted your request by 3:00 P.M. According you to, your plan's cut-off time is earlier. You have control over the mutual fund options that you selected though your selections are limited by the offerrings. You are responsible for the management of this account.

- Pension funds are managed by investment firms contracted by your company. The details are less transparent to the participants ie. you. You and your company have an agreement for a payout amount based on various factors (ie. time of service, average annual salary ect.). Put aside the company's financial health etc., the company is responsible for the management of the pension's administrator to ensure that it can fulfill the ongoing responsibility to provide payouts to qualified participants. Your company is responsible for the management of this account so if the administrator 'mess up' by investing in less than profitable holdings they are still responsible for the agreed-upon amount with you providing that they are still an ongoing operational entity(!).

Suppose a simple mutal fund of two companies A and B. Early in the day, news comes out that company A faces a multi-zillion dollar law suit. Owners of company A dump their shares and all ex-owners put the profit in a money market. Where does that leave holders of the mutal fund?

All the funds I moved into had this redemption fee. When I search to find out what that was, I found out that once I put the money in it had to stay in that account for a minimum of 30-90 days or a 2% redemption fee would be charged.

First of all, most mutual funds that has a redemption fee impose this fee on both the retail version and the 401K version so there is no difference there. In fact, you could look at it as a positive factor in that the fund would discourage day traders so therefore, benefiting investors. Secondly, if the mutual fund in question does not react to the 'disastrous' news of Company A then I guess that the retail investors, 401K investors, and pension fund investors of the fund will suffer equally. I guess I'm still don't see where in such a situation that pension fund or 401K participants will come out worse than a retail investor of the same fund.

 

[Tadpole]

Thanks.

As far as my question, I apologize to all. I was trying to understand what physical drives market drops and rises as a zero sum cash flow. Perhaps the problem is that money is not real either.

 

[BigMoneyJim]

I was trying to understand what physical drives market drops and rises as a zero sum cash flow. Perhaps the problem is that money is not real either.

It's not zero sum, and money's not static, anyway. It's too complex for me to understand without further learning where all the money comes from and where it goes.