Oh Mr. President, Say It Isn't So

I recently read an article by former FDIC Chair Shelia Bair in the Financial Times where she quoted the renowned investor Peter Lynch, "dumb money is only dumb when it listens to smart money." I think Ms. Bair has been reading our recent Benzinga posts cautioning retail investors about investing their money into private credit.

As you might have heard, President Trump recently signed an Executive Order (EO) allowing access to alternative investments, which private credit is, within your 401(k) plan.

All Presidents sign EO's, some are good, some are bad. When it comes to this particular EO, this president has hit his tee-shot out of bounds and as the golf rules stipulate, he should retee.

I recently responded to the editors at the Wall St Journal in response to a piece that was written by Hal Scott and John Gulliver entitled, Trump Plans to Give Your 401(k) a Boost. The authors attempted to make the case as to why allowing 401(k) plans access to these investments is a good idea. One of their reasons, "investing plan assets in private assets is a good thing because public companies are subject to increasingly burdensome disclosure obligations, compliance costs and litigation risk while private companies aren't." Does anyone else besides my partner and I think we are heading in the wrong direction when it comes to saving for retirement, between allowing for annuities (another investment my firm despises) and now private credit? I'm not a fan of over-regulation, Lord knows we have plenty of it, especially within my industry. However, considering that these private investments have little oversight, little to no liquidity, much higher than normal annual fees, and according to Blackstone's CEO Larry Fink, their new Private Credit Target Date Fund could, and I quote, "potentially increase returns by 0.5% annually and 15% more over 40 years," I think it's safe to say companies' retirement plans can do without these kinds of investments.

I think the President should write a new Executive Order banning these from your work-place retirement plans. It would not be the first time he changed his mind. My industry is notorious for attempting to create investments that will outperform and help you to retire comfortably. The S&P 500, since 1988, has returned 12.6% per year including dividends -I'd bet my firm, LCM Capital Management, assuming my partner would agree, that most investors haven't had that annualized rate of return on their investments. The reason is actually quite simple; the financial industry tends to prevent that from happening. Why you ask? That's simple too, it's their never-ending desire to create and sell you something that makes them more money than you!

There is a better way.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.