Broker Check

The Government is Going to Take Your IRA/401k – Sensational Ads Designed to Scare You

| September 18, 2020
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Did the initial headline capture your attention? If it did, that was the purpose. Part of our value to you as our client is to help guide and research things for you. In the past several months, many clients have reached out to us and shared some advertisement they have received in the mail, email, phone call, on a website, or watched on TV. They have received communication that has a sensational headline like the ones above: The Government is Going To Take Your 401k! How the Dodd Frank Reform Act is Going to Let the Government Confiscate Your Retirement Savings? Get Your Money Out of Your 401k Before September 16th or Risk Losing It All.

Advertisers know that these types of things play on our worst fears as people that we are going to lose everything. Also, in a heightened and contentious political environment, it plays on our fears about our Government. It is designed to tap into the parts of our brain that go back millenniums where it is fight or flight. So what is a person to do?

  1. We are here as a resource. If you have concerns, please feel free to reach out to us and we can talk through it. Our goal is to be a trusted advisor and have a deep relationship so feel free to contact us. With that being said, here are some other things to consider:
  2. First of all, very few of us make our best decisions when we are in fear mode. Often times when we are in fear mode, our breathing becomes shallow and we get less oxygen to the brain. Our thoughts can start to spiral out of control to worst case scenarios. Do deep breathing, predominantly inhale and exhale through your nose. This act alone can be incredibly calming.
  3. Bring a skeptical mind to the situation. Some things more specific to this:
  • I usually start with the mindset when I see an ad like this: What is their angle? What is in it for them? If somebody is telling me it is the end of the world, are they doing it out of kindness of their heart? Most likely, there is something in it for them? In our experience, the main things these ads are doing is trying to sell you a product or service. Some of the things most common are some type of commodity like gold and silver, insurance product like life insurance or annuities, subscription service or newsletter, or trying to entice you as a financial professional who has the forecasting ability like Nostradamus that they have crystal ball that can see into the future.
  • Who is the source on that? Do I know who they are? Are they reputable? Be careful on celebrity endorsers. Just because I liked a guy or gal in a TV show or movie, what gives them the credibility to tell me whether I should be investing in gold or silver? One guy we follow a lot is gentleman by the name of Ray Dalio. He runs a very prominent investment company and teaches management principles. One thing he talks about when you are getting advice from anyone is ask yourself: Are they credible and do they have a history of credible decisions?
  • Scrutinize who that person is and the company they are representing and use the power of Google and internet to run a search. We have had clients when contacted, the person does not identify who they are and what organization they are with. This should be a major red flag for you. In today’s day and age, most reputable professionals and organizations have some digital presence through website or profile in LinkedIn or business Facebook explaining who they are. Take a look at what the credentials are of the organization and person.
  • Often times in the ad, they will reference some actual law or something that is real. For instance, one client received correspondence talking about the Dodd Frank Reform Act and how the government was going to use it to take your money. The Dodd Frank Reform Act is an actual law. It was designed post Enron and a lot of other companies who did illegal activities by doctoring their financial statements. They took something that was real and implied something different. We try to stay abreast of legislative environment along with our broker/dealer, Cambridge. They participate in the Financial Service Institute which is constantly looking at regulatory environment and things that may adversely affect you.
  • Assuming the doomsday situation is true, is the solution they are proposing valid and the only option that you have? I have studied the act of decision making. We as people like to think of things as black and white that I only have two options and one is good and one is bad. Real life is not so clear most of the time. From an investment standpoint, there is no perfect investment. Every investment has pro and con. For instance, the cash I have in the bank. People often refer to this as safe. The pro of it is that your principal will not go down and FDIC insured. The two main negatives are it usually is a very bad hedge for inflation. If we have all our money in cash, our purchasing power is constantly eroding. What $10 bought 10 years ago is different from what is now and what it will be 10 years from now. Also, cash in the bank is safe to the degree that the Government that makes those guarantees will be able to back the obligations. If we play out the worst case scenarios through, it really can take us to dark places.
  • A side note to this, gold and other precious metals are often sold as safe investments. They do particularly well during periods of high uncertainty like we had at the beginning the pandemic. However, it is important to understand that its price can be extremely volatile. In period of 2011 and 2012, it dropped approximately 40% which means it has similar volatility characteristics like a stock.
  • Finally, we have to ask ourselves two other things: Is it possible for it to be true? Then follow up with how probable is it? Is it possible that an asteroid could hit us right now. Sure. How probable is it? Probably not likely.

Fear sells and advertisers know it. Hopefully, this helps you handle some of these situations. If you do get something in which you are concerned. Feel free to contact us.

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