Bt Investments Blog

Banks are increasingly the destination of choice for Americans rolling over their 401(k) into an IRA. That qualifies as “uh-oh” worthy in my book.

According to a new survey of affluent investors by BAI and the Financial Research Corporation (investable assets of at least $50,000 is all it takes to qualify) banks are grabbing serious market share from brokerages and fund companies. Check out this telling chart that shows banks’ share of rollovers has nearly doubled since 2007.

Source: BAI Research, FRC.

No doubt, the financial crisis has played a role in the shift, as more investors flocked to the supposed safety of banks. I say supposed, because holding your retirement assets in the bank doesn’t really guarantee it is safe.

• There’s no FDIC insurance if the money is actually invested, not saved. Hopefully this is clear, but just in case: If you rollover the money into a bona fide bank account, such as CD, or money market deposit account (MMDAs), you are in fact protected by FDIC insurance, up to certain limits. But if you roll over the 401(k) to a bank account and then invest the money in a mutual fund, ETF or the direct purchase of stocks and bonds, that money is not covered by FDIC insurance. Classic bank savings accounts are covered by FDIC insurance. Investments are not.

• CDs and MMDAs are in fact dangerous for your retirement security once you factor in inflation. Over a 20-year period, a 4 percent annualized inflation rate-the norm for the past 50 years-will erode the purchasing power of your money by about 50 percent. With that perspective, the strategy of keeping your retirement money in “safe” bank accounts doesn’t exactly seem so safe. The bottom line is that even if you are close to retirement, or retired, a portion of your assets likely needs to still be invested in equities. Not all, and certainly not even the majority, but some. A 65-year old today has an average life expectancy of close to 20 years. And if you’re in the half of today’s 65-year-olds that makes it those 20-odd years , you’ll then have another five to 10 years of expected life expectancy. Let me do the math: If you’re 65 today it’s not far-fetched that you will still be around at 90.

The Fee Factor

Okay, so where’s the best place for your 401(k) rollover? Fees should be a major factor in your decision. Let’s assume that any bank, discount brokerage, full-service brokerage or mutual fund company has a complete lineup of investment options you could use to build a diversified age-appropriate retirement portfolio. So how do you differentiate among those choices? Cost. The less you pay in investment costs, the more money that stays invested for your retirement security. If you can find a bank that offers investments with lower annual expenses than the funds and ETFs offered at Fidelity, Vanguard, or Schwab, then by all means give that bank your rollover business. But I think in most instances you will find that in terms of low-cost investing, those three are hard to beat.

The Indian Dairy Association (IDA) Tuesday sought greater investment by central and state governments to enhance milk productivity and increase value added products to ensure the country retained its 'numero uno' position in the world.

"Though India is the world's largest milk producer, the per capita yield is 950 litres a year, which is abysmally lower than of Pakistan's 1,400 litres per annum," National Dairy Research Institute (NDRI) head Satish Kulkarni told reporters.

With a whopping annual sales turnover of Rs.1.1 trillion and 105 million tonnes of production per annum, the dairy industry contributes immensely to the country's agricultural growth, creating millions of direct and indirect jobs.

"Most of the investments by state-run organisations go into agriculture and allied activities leaving very little for the growth and development of the dairy sector. There is a need to scale investments in animal husbandry, veterinary practices, quality feed and best healthcare facilities," Kulkarni said on the eve of the 38th Dairy Industry Conference here.

The high-powered committee of the Planning Commission, headed by N.R. Bhasin, recently recommended significant measures to increase the per cattle yield to 1,200 litres of milk per annum by 2012.

"The stakeholders should focus on improving the feed and fodder resources, technology transfer and extension in animal husbandry and dairying sector to ensure higher productivity. The department of animal husbandry and dairying (DAHD) should prune the number of schemes (24) to provide genetic make-up and animal health facilities," Kulkarni noted.

The 10-member committee also suggested that the central sector and centrally sponsored scheme in future should be taken up in three distinct streams.

The first stream should comprise five schemes of national importance such as cattle and buffalo breeding or development project, national livestock extension programme and national project on control of animal diseases.

The second should have schemes of regional importance on species specific or state specific projects like development of the dairy sector, sheep, goats and pigs in the north-eastern states. And the third stream should cover schemes implemented through Nabard (National Bank for Agriculture and Rural Development) as venture capital fund.

The panel also recommended that schemes like 'Operation Flood' and 'non-Operation Flood' for implementing the venture capital fund should be abolished.

Of the total milk production, 47 percent is consumed at the village level while the rest is shared by cities and towns.

Cooperative societies, which spearheaded the 'white revolution' in the country under the leadership of former National Dairy Development Board (NDDB) chairman Verghese Kurien, account for about 80 percent of the total milk production and value added products.

Accounting for about 14 percent of the world's milk production, the Indian dairy industry has been growing at four percent as against the world's average growth of eight percent.

"We have to double the growth to eight percent in the next two-three years if the share of agriculture sector to the GDP (gross domestic product) has to be four percent," Kulkarni said.

According to the 1992 livestock census, head of cattle in the country numbered 205 million, which was one-sixth of the world's total, including 84 million buffaloes and about 120 million cows.

"On the export front, we have not been able to capitalise on the opportunities and tap new markets. As a result, export turnover was Rs.1,000 crore (Rs.10 billion) last fiscal (2008-09), thanks to the on-and-off government policy to ban exports during lean season and lifting it during glut," Kulkarni lamented.

The organised sector led by cooperative societies and private firms contribute 15 percent of the total milk production and generates about Rs.28,000 crore (Rs.280 billion), accounting for around 16 percent of the total revenue.

Last updated on Feb 16th, 2010 at 17:31 pm IST--IANS