Should Automatic Investing Be Automatically Avoided?

Obama Budget Gives

Bureaucrats New

Tools to Corral Investors

In March, the White House released its fiscal year 2015 Budget. Highlights (or, rather, lowlights) include a 6.8% increase in spending and $376 billion in new taxes. Buried in the massive package of tax-and-spend proposals is a provision establishing automatic enrollment in retirement accounts.

This is yet another step toward the long-term objective of nationalizing retirement accounts. It is proceeding almost exactly as we had predicted when Independent Living sounded the alarm early in Obama’s first term. Bureaucrats are now being empowered to aggressively push Americans into qualified retirement accounts – and specifically into accounts that hold government bonds.

As we reported last month, the President claimed the authority to establish the “MyRA” through executive order. He also claimed the authority to create a special government bond vehicle that will be the only investment option offered in the misnamed MyRAs.

Now under Obama’s automatic enrollment proposal, employers will be coerced into enrolling employees in MyRAs, 401(k) plans, and other qualified retirement savings vehicles. Employees will be automatically put into government-approved investments without their actual, positive consent. (They will have to go through an opt-out process if they wish to escape automatic enrollment.)

Advantages and Disadvantages

of Various Investment

Autopilot Programs

Beware of being enrolled into accounts or investments selected by President Obama, your employer, or anyone other than yourself or a trusted financial advisor.

There’s nothing inherently wrong with automatic investing, provided that it’s done on your terms!

There are various ways of putting your investments on autopilot. Dividend Reinvestment Programs (DRIPs) enable you to buy shares of certain bluechip stocks directly from the companies themselves, without going through a broker. You gradually increase the number of shares you own by automatically reinvesting dividends. You can also sign up for discounted or no-cost automatic monthly stock share purchases through brokerage services such as ShareBuilder.

The advantages of participating in automatic investing plans include:

  • Keeping your finances on a disciplined, longterm path and avoiding the pitfalls of market timing.
  • Taking the hassle and stress out of deciding when to buy and how much to commit with each purchase.
  • Eliminating the potential for procrastination and forgetfulness to leave you under-invested.

On the flip side, disadvantages of automatic investing include:

  • Not being able to pull the trigger to buy at perceived opportune times,
  • Risking having an investment bought on your behalf at a market high or other inopportune time.
  • Potential to foster passivity and disengagement from the actual process of managing your money.