Roger Cyr

Monday, 29 April 2002 18:48

After the storm

While Mother Nature doesn't control the stock market, the market can fluctuate just like the weather.

Slowly but surely, the equity market is emerging from a long storm and shifting to a more temperate climate. With improving earnings and better news in the economy, investors may be tempted to assume there is smooth sailing ahead.

But, now is the time to make plans to ride out future storms.

During the the last few years, many investors' 401(k) accounts have taken a beating, especially if they were heavily invested in growth equities. Don't be lulled by improving performance -- adjust your thinking to prepare for and accommodate the swings in the market. While the market is still turbulent and investors are wary of its effect on their savings, they should embrace two fundamental concepts: maintaining a balance and thinking long term.

Ninety-five percent of the success in accumulating wealth is accounted for by the balance you strike in your portfolio through asset allocation -- not the individual funds or securities you select.

Some people accumulated substantial gains by selecting certain stocks; however, many more lost substantially on the same approach.

Balancing your portfolio between equities and fixed income investments helps shelter your savings. The average return for an all-equity portfolio over time is 13 percent; the average return for a portfolio balanced between equity and fixed-income investments is 12.5 percent.

Time is as critical in the accumulation of wealth as performance. The market ebb and flow impacts your savings, so the most important consideration is the point at which you cash out.

In the short term, it's not possible to predict what might happen. But over the long term, with tracking and historical knowledge, financial advisers can make predictions based on research and prior performance. They can see trends in the market and the reasons for overall market movements while putting them in context. And despite periodic storms, the market has made generally positive movements over time.

So, if you are a long-term saver, act like one. If you're comfortable with your asset allocation, leave your investments alone. Continue with your plan, whether the market is soaring or tanking. Over the long term, a balanced, well-diversified portfolio should move with the market.

If you're not a long-term saver, you should become one -- it will help you avoid being caught in a storm without an umbrella. Roger St. Cyr is vice president and senior consultant, Fifth Third Bank Investment Advisors. Reach him at Fifth Third Bank Investment Advisors, (614) 233-4672 or

Friday, 20 December 2002 09:29

Original retirement plan

Ted Benna, referred to as the father of 401(k) plans, changed the way we save for retirement.

Before the creation of 401(k)s, companies allowed employees who received bonuses and other profit-sharing compensation to defer payment, effectively deferring payment of taxes on the income. While this practice sounds similar to that of today's 401(k)s, it was informal and typically an option only for highly paid employees.

The IRS thought the deferred arrangement favored highly paid employees too much and added section "k" in 1978. It added a nondiscrimination "test" that tied the maximum deferrals made by highly paid employees to the amount lesser-paid employees chose to defer. Section 401(k) was added to the IRS code to settle tax equality questions.

While on vacation in 1980, R. Theodore Benna, an employee benefits consultant in Philadelphia, read and reread the new section of code and envisioned the new legislation completely differently from what the IRS had intended.

Benna realized that, while not the object, Section 401(k) codified the common practice of deferring compensation. It allowed employees to make decisions about participation and contribution levels.

Not only could employees choose to participate in some form of tax-deferred savings, but employers could match employee contributions. Benna saw the potentially huge impact of a formalized employee tax-deferred savings plan, especially one that incorporated matching contributions.

He established the first 401(k) plan in 1981 for his company, spawning one of the best-known and used employee retirement savings devices. The plan helped his company lower its tax bills and encouraged all employees, not just the highly paid, to save.

By 1985, the 401(k) was very popular -- perhaps too popular for some lawmakers. The U.S. Treasury estimated it had lost $10 billion in tax revenue since 1981 due to tax-deferred contributions. Alarmed, it approached Congress to end the revenue drain by changing the law. Benna launched a massive letter-writing campaign and succeeded in retaining the 401(k), although Congress significantly reduced the maximum deferral.

As Benna later realized, the biggest challenge to use of 401(k) plans was a lack of understanding about investing. Markets fluctuate, and education is critical to prepare people to tolerate short-term losses and make commitments to savings and investing for long-term gains.

Today, employers have a fiduciary responsibility to help prepare employees to make reasonable investment decisions for long-term planning. Since many don't have the expertise or resources to educate employees about savings options, it is important to ask a financial expert to help.

Consult a financial adviser who can work with employers of all disciplines and sizes to serve as an education consultant. Whether a company has a new plan or one with millions of dollars in assets, it's a good idea to re-evaluate it and the education component, and to help employees reap the rewards of balanced long-term financial planning. How to reach: Roger St. Cyr, vice president and senior consultant, Fifth Third Bank Investment Advisors, (614) 341-2606 or