Taking Stock of Your Financial Future, Part 1

Though it takes time to become a seasoned veteran investor, it’s never been easier to become a successful investor. Thanks to plummeting transaction costs and an explosion in the number of web sites and online resources that are devoted to helping novice investors make smart and better informed choices, the playing field between do-it-yourself bark-a-lounger capitalists and Wall Street’s  Big-Whigs has never been more level. Technological advancement and financial innovation have opened up whole new vistas of economic opportunity for the masses of ordinary investors who don’t commute to work on Gulfstream jets, sit on corporate boards, own starter McMansions or roam the corridors of power. Nowadays, computers with blinking lights, once the stuff of campy futuristic science-fiction movies, rank right up there alongside the telephone and the microwave as indispensable and commonly owned household appliances. In this bold new financial era–where knowledge is arguably the highest form of capital–the widespread availability of financial data (on demand and at little-to-no cost) is a real game-changer; particularly for young people just starting out.

Contrast current economic reality with the financial dark ages of the early 1990s–or, worse yet, late 1980s. In those bygone days, obtaining actionable investment information was neither simple nor easy. Moreover, putting it to work in the capital markets required knowing the right people, paying hefty up-front fees and waiting hours (sometimes even days) for requested financial transactions to be executed. Not so long ago, the spring-loaded gears and cogs that kept the stock market’s machinery churning were manually cranked by a patchwork of brokers, floor traders and other specialists. Nowadays, stocks and the future earning power they represent can be bought and sold on-the-fly in a matter of seconds with the aid of an Internet enabled smart phone. Though the old financial guard certainly had a good run, its convoluted architecture served only the super wealthy. Back then, ordinary Americans were unable to tap into and participate in the world’s stock markets.

Clearly, times have changed–and mostly for the better. The old financial guard has been snappily replaced with a new financial order, one that’s decidedly less stodgy and far more responsive to the needs of a larger and more demanding constituency: The general public.

Nowadays, when it comes to the once difficult task of investing smartly over the long tenure of one’s career, the hi-caliber tools and analytical resources that were once available only to the one percenters are now readily accessible to anyone with a personal computer, a bit of investment know-how, a brokerage account and an Internet connection. But how did this unlikely turn of events come to pass? Why did the old financial guard–which profited handsomely for decades from its indispensable role inter-mediating stock market transactions–surrender its considerable market power to upstart industry competitors? No-doubt, this involuntary loss of influence didn’t occur overnight. Steadily intensifying competition in the financial sector has, slowly but surely, shifted the underlying dynamics of the marketplace, forcing inflexible and inefficient firms to close their doors. These consumer friendly forces have rewritten the rules of the economic game and revolutionized how capital markets work. Consequently, ordinary people from all walks of life are newly empowered to research and select their own investments. Suddenly, consumers are less reliant on the advice and solicitous hand holding of licensed industry professionals and self-proclaimed “experts” when it comes to managing their brokerage and retirement account assets. The Internet, which makes accurate and timely investment information available to all, has been a powerful driving force behind this remarkable new trend. Tom Friedman, New York Times columnist and Pulitzer Prize winning author of The Lexus and the Olive Tree, calls dubs this phenomenon “The democratization of finance.”

The growing popularity of sites like Yahoo! Finance, MSN Money and Morningstar, which generate tremendous visitor traffic, reflect the investor-friendly times we now live in. The ease with which company information can be found online speaks to the public’s large and growing appetite for all manner of financially oriented content. Want to know how a particular stock is doing? Simply key in its corresponding ticker symbol, and, viola, you can view late-breaking business headlines, see what financial experts are saying about it, scrutinize every aspect of its past financial performance and view its stock price over any specified interval of time. No-doubt, having all of this information at your fingertips is tremendously enabling. Through the medium of technology and the hi-tech zoom lens of financial supermarkets, consumers can put their money to work for them in new and unprecedented ways. The interest and enthusiasm that some Americans once reserved for the sports section of their local newspaper has begun to spill over to the business section. Because millions of people are directly or indirectly participating in the stock market through participation in employer sponsored pensions, 401Ks, personal brokerage accounts, IRAs, 529 college savings plans and medical expense savings accounts, they’re as likely to cheer the performance of their investments as they are to root for their favorite sports home team(s). As financial assets like stocks, bonds, commodities and real estate (Yes, even real-estate. To understand why real-estate can be as easily purchased with a brokerage account as it can with the costly aid of an appraiser, real-estate agent and a lender, read What’s in a REIT? & REITs and Investment Property. Both articles are posted to this site.) become easier to acquire, people from all walks of life can afford to accumulate them.

To help novice investors successfully navigate this new and mostly foreign investment landscape, firms like Vanguard, Fidelity, Morningstar and others offer a wealth of educational self-help content, a host of robust and interactive tools, and a dizzying menu of low-cost investment products for investors to choose from. Mutual funds, exchange traded funds and life-cycle funds are fantastic options for those interested in participating in the stock market but sidestep the hassle and tedium of researching, selecting and managing their own portfolio and investment holdings. Nowadays, novice investors armed with only a basic understanding of stocks and a rudimentary grasp of investment theory can easily and inexpensively create a broadly diversified age-appropriate portfolio; something which, back in the day, couldn’t be done cheaply or easily. Through the purchase of mutual funds, investors can hitch the future financial performance of their investment wagons to the best and brightest minds on Wall Street. Throw in the long-term gale-force economic tailwind of tax-deferred and even tax-free growth (which can be enjoyed by opening and funding a 401K or Roth IRA) and the allure of investing becomes even harder to resist.

Capitalizing on the economic opportunities that these favorable circumstances present, however, is doable as it”s never been before. Cashing in on capitalism requires owning stocks (an asset class whose multi-decade returns easily outperform bonds, real estate, cash and commodities), as well as a basic understanding of what they are and how they work. Stocks are closely followed and tirelessly discussed because they offer a mechanism allowing investors to own a dazzling array of proven, and, in some cases, obscenely profitable companies. You see, stockholders are legally entitled to an interest in a company’s current and future profits; something which, in turn, is generally well supported by an organization’s abundance of human talent, operational cash flows, and mote of competitive advantages. Think about it. This is a powerful concept. If you buy a few shares of, say, Starbucks, you’ll reap a small fraction of the profits that result from the sale of each and every beverage or scone that it sells across the registers of its thousands of stores. In theory, whenever a new store opens, this corporate investment may benefit your bottom line. Of course, as an investor in this business, you share in all of the organization’s operating costs as well. Stocks’ long-term record of out-performance is further supported by the execution and creative talent of its management and the many contributions of its employees. Clearly, you’ve got a lot going for you as a shareholder and stock market participant. Moreover, through the exercise of voting rights, stockholders exert influence on how the businesses they own are managed.

The likelihood of future appreciation in the value of one’s stock holdings is bolstered by several factors. Ben Graham, Warren Buffet’s mentor and an iconic investor in his own right, once remarked that “In the short-term, stocks are a voting machine but in the long-term they’re a weighing machine.” Translation: one’s perspective of stocks and their performance is heavily skewed by the interval of time one examines to evaluate their performance. On a daily, weekly or monthly basis, stock prices are volatile and prone to wild fluctuations due to unstable market conditions and shifty investor sentiment. Over longer periods of time (think decades) companies and their stock prices tend to reflect a smoother and less erratic upward bias as the consistency of its earnings and bottom-line profits become more apparent. And, so it is that, with continued patience and a longer term perspective, the stock market’s nerve-racking day-to-day gyrations, which Mr. Graham likens to a voting machine, becomes a weighing machine that tends to reward patient long-term investors.

Luckily, investors don’t have to agonize about cherry picking good investments and shunning bad ones. With blunt force instruments like mutual and exchange traded funds, hundreds or even thousands of individual stocks can be acquired in a single transaction. To be sure, the old adage about not putting too many of one’s investment eggs in a single basket is well worth heeding. Sprinkling one’s long-term savings over a variety of asset classes (commodities, real estate, stocks, cash and bonds) is, in the long run, an effective way to reduce risk and optimize returns. Imagine how foolish you’d have felt if, back in the day, you’d incautiously invested the entirety of your life savings on a single holding like, say, AIG, Enron, GM or WorldCom. No-load and low-cost mutual funds, though certainly nice, aren’t necessarily your best investment choice either. Nobel laureate William Sharpe calls indexing (buying low cost exchange traded funds, or ETFs) “a dull, boring way to become a better investor than many of your friends.” Index investing offers instant diversification and cost-efficient exposure to almost any sector and theme. What’s more, ETFs can zero in with laser-like precision on companies of a certain size or even those that operate in specific sectors of our economy like health-care (Johnson & Johnson and Pfizer are household names that dominate this space), technology (Microsoft, Intel and IBM are sector standouts), the energy complex (Chevron and Exxon are names you may have heard of), consumer staples (Procter & Gamble, the maker of Crest toothpaste is an industry giant), or banking (Bank of a America has branches and ATMs everywhere). More importantly, since money and the desire to make it is an increasingly global phenomenon, investors can lace up their walking shoes and dispatch their hard-earned capital to the furthest regions of the earth in search of high-octane returns. Exciting stuff—no? Triumph of the Optimists, written by three British researchers, validates the wisdom of investing in stocks. After calculating the comparative returns of stocks, bonds and government securities in 16 countries over the past century, they unambiguously concluded, “Stock returns beat bonds in every country by a wide margin.”

This is all well and good, of course, but the likelihood of future appreciation in the value of one’s stock holdings is only one reason why stocks are worth owning for the long term. Dividends, which are periodic cash disbursements companies pay their shareholders, are another way to cash in on stocks. Though, at first glance, dividends might seem downright puny, over time they can add up to lots of money. According to Standard and Poor’s Howard Silverblatt, from 1926 through March 2009, reinvested dividends accounted for a whopping 44% of the S&P 500’s 9.5% annualized gains. Of course, not all stocks pay a dividend, but many do. And once a company establishes a consistent track record of paying them, management is understandably loath to cut or eliminate dividend payouts to shareholders for fear of the negative signal it sends about its financial health and the likelihood that such a move would alienate current and prospective investors. Moreover, as a company’s financial outlook brightens, its dividend payout is likely to increase at a rate that handily outpaces inflation. Dividend are paid in regular annual installments and the amount of a company’s annual disbursement typically ranges from one-to-five percent of a stock’s purchase price. This largely reliable rate of return compares favorably to the anemic returns you’ll get from a money market savings accounts. Dividends are dandy for another reason as well. Thanks to the passage of investor friendly tax legislation by plutocrats in Congress, qualified dividends are subject to an ultra skimpy tax rate of just 15%. Is this good? Well, to put this tax rate in perspective, consider this: a dollar of earned income (that is, wages) will, after taxes (assuming you’re in the 33% State-Federal tax bracket), put 67 cents in your pocket. If that same dollar were received as dividend income, you’d enjoy the equivalent of a 27% pay increase. Now, a few measly pennies one way or another may not thrill you, but, to reframe the original question, which would you rather have, 85% or 67% of your income?

Remarkably, though stocks have proven themselves to be fantastic wealth-building tools over very long periods of time, many people are skittish and downright reluctant to own them. Some are understandably put-off by stocks’ inherent volatility while others are drawn to them by the tantalizing prospect of higher returns. To the uninitiated, the stock market is an understandably confusing place. For starters, there’s all that pretentious jargon to think about. Profit margins, price-to-earning ratios, market capitalizations and debt-to-equity ratios are, for many, a sure-fire cure for insomnia. And it doesn’t help matters that these closely followed metrics aren’t fixed, they’re driven by numbers that change every day. Considering all of the nuanced and highly dynamic variables that are associated with stocks and their constantly shifting values, there’s justifiable cause for apprehension on the part of any non-investor.

Nevertheless, although putting money to work in the stock market might seem scary; investing successfully over time isn’t. In fact, given the vast arsenal of tools that are now readily accessible, investing—and doing it right—isn’t that hard. Once you’re familiar with the stock market’s long-term upward bias and are comfortable with its erratic short-term performance, you’ll someday look back and wonder what all the initial fuss and consternation about investing was all about. Done right, investing occurs automatically, as if on autopilot. Opinions to the contrary notwithstanding, investing isn’t particularly sexy or exciting. In fact, it’s a little boring; sort of like watching paint dry or bread toast. Over one or more decades, however, investing perks up and becomes a lot more exciting. Fortunately, cashing-in on capitalism doesn’t require much in the way of shrewd analytical genius. What you do need, however, is faith, unwavering perseverance, and a cast-iron stomach for volatility. Basically, investing well over time requires: 1) a basic understanding of how stocks, bonds, real estate and commodities work, and 2) the intestinal fortitude to establish and consistently fund a diversified investment strategy—in good times and bad.

Now, despite what the revolving parade of talking heads on CNBC would have you believe—what with their intimidating power ties, quasi authoritative news anchor demeanors and meticulously quaffed hair—you needn’t be Gordon Gecko (that swaggering cocksure money manager artfully portrayed by Michael Douglas in the movie Wall Street) to do well in the stock market. Resist the urge to swing for the fences. Don’t be that swashbuckling yahoo who incautiously puts everything on a single or even a handful of promising stocks because they’re the toast of tinsel town and the business media is fawning over them. Beware silver tongued pitchmen who tout “can’t-miss” investment advice. Want a stock tip? Don’t listen to stock tips… First off, the well-paid hucksters out there who hawk investment advice don’t know you. Secondly, they aren’t paid to champion your interests. More often than not, they’re secretly promoting a different agenda and are hoping to cash-in on the market activity that their overtly public comments will generate. The takeaway point? Trust no one—except maybe yourself; and even then, only after you’ve done your homework, have squirreled away emergency savings equal to anywhere from three-to-six months worth of current living expenses, and are absolutely clear on that fact that, come hell or high water, the money you’re investing in the stock market today won’t be needed for ten plus years.

As an investor, why would you own individual stocks when you can so easily and inexpensively create a sensibly diversified portfolio? Content yourself with getting on first base. Be patient, sit back and let time do its thing. Of course, when you invest, the money you’re risking is yours. Needless to say, you’re the one who’s going to suffer the greatest losses if you fail and reap the greatest rewards if you succeed. Because nobody else will take your financial interests to heart as nearly and dearly as you, why would you check your brain at the door and entrust this important job to someone else? Once you get a handle on the basics of investing (the library’s a good place to jump-start this process–Ron Muhlenkamp’s Harvesting Profits is a recommended read) you’ll be equipped to safely follow your own instincts. Trust me, this is a far better strategy than relying on the received kindness and wisdom of complete strangers.

The stock market is an oft used term that, I fear, isn’t particularly well understood by would-be investors. To dispel any confusion, this issue deserves closer examination. What, exactly, is the stock market? In short, it’s an elaborate living-breathing mechanism whose day-to-day gyrations are driven by a bewildering assortment of mostly unrelated and largely unpredictable factors. Of these, two of the most prominent are investors’ collective perceptions of stocks’ future value, and, from a broader 30,000 foot perspective, the overall health of the national economies in which they operate. Basically, it comes down to this: for every seller of a stock there must be a buyer—and vice versa. When you multiply this straightforward concept by the trillions of dollars that are sloshing around on the world’s courses, it’s easier to understand why the phrase “stock market” refers to somethings that’s gosh darned complex. But, for convenience sake, suppose we swept all of this mind boggling complexity aside and reached for a simpler explanation for the stock market’s manic day-to-day performance. Generally, if the total volume of all selling activity exceeds that of buyers, market indexes (the S&P 500 and Dow Jones Industrial Average are well-known examples) and the share prices of many companies in them will rise. Conversely, if net trading activity favors sellers over buyers, this process works in reverse and valuations fall. It’s both that simple and that complex. And here’s another thing: when you consider each market participants’ individual agenda and motive, and the varied circumstances that ultimately prompt the buying or selling a stock, and you add to this the dynamic X-factor of automated trading programs which collectively move massive amounts of stock on market exchanges, it’s easy to understand why the sum total of all this frantic and sometimes random activity cannot be neatly or even accurately explained by a succinct summary of any given day’s business headline news. Though, to be sure, this is precisely what pundits on CNBC and elsewhere would have you believe with their allegedly insightful market commentary. Ultimately, it boils down to this: the stock market is like a referee. It doesn’t offer an explanation for its decisions and its verdict is all that counts. Barron’s columnist Michael Santoli likens the stock market to “an ongoing argument over the future, staged over six-and-a-half hour sessions each weekday, among people who can’t even agree on what’s most important to be arguing about.”

Usually, when people think about investing, it’s within the context of achieving faraway financial goals; the kind that seem so vanishingly remote that viewing them up-close would require the aid of sophisticated equipment; perhaps something along the lines of a tricked-out Hubble telescope. Rightly or wrongly, for most Americans, the economic burdens of retirement seem light-years away. Unfortunately, young-adults and newly minted professionals are especially vulnerable to this virulent strain of fiscal myopia. And there’s no shortage of supporting evidence. According to a study by Vanguard, less than half (42%) of employees between the ages of 25 and 34 participate in 401(k) plans. It’s reasonable to conclude that many young people aren’t terribly preoccupied with how they’ll make ends meet in retirement. Chances are, this will be a costly oversight because, though bankrolling their golden years may not rank highly on their list of day-to-day priorities, there are many reasons why it should.

For starters, unlike life’s other big-ticket expenditures–like, say, for a house or a car–banks don’t offer retirement financing. And this inconvenient fact is unlikely to change anytime soon. Of course, young adults will (assuming all goes well) gradually age. Inevitably, at some point in their lives, they’ll want to bid adieu to the grueling monotony of the work-a-day-world. Although the vast majority of teens and twentysomethings may not yet realize it, accumulating enough moolah to make retirement a viable option is a monstrous challenge. Incubating and later hatching the sort of super-sized nest-egg that will be needed to support a dignified standard of living will require thrift, financial literacy, and conscientious economic planning. For reasons that’ll be glaringly apparent to young people half a century or so from now, they can’t afford to wait till they’re middle aged to discover that they should’ve been aggressively saving and investing for their economic futures during their formative teens and twenties. The takeaway point? If youngsters don’t get around to mastering the ABCs of personal finance till they’re old enough to collect social security (whatever meager sum that may then be) they’ll be greatly aggrieved to discover that they’ve squandered what is arguably their greatest asset: the wealth compounding power of time. You see, with one-third to one-half of their economically productive years in the rear-view mirror, they’ll be in a tough economic bind. As any money manager worth his or her salt will tell you, at a certain point in the wealth building process, it’s impossible to quickly or safely compensate for having not established sensible money habits earlier in one’s life. The gravity of this point is perhaps best illustrated with numbers. Over the last 100 years or so, money in the stock market has grown at a rate of about 10% per year. Assuming this rate of return can be banked in future years, how much money must a 20 year-old save every month to accumulate $100,000 by age 65? Answer: less than ten bucks. A 50 year-old, however, must set aside $239 each month to hit the same saving target by age 65. To be sure, the prospect of grinding poverty in old age doesn’t elicit much cheer or enthusiasm. Nonetheless, given our society’s newly pervasive ownership bias, this could be the default life path for those who don’t aggressively plan against it. Because saving enough for retirement–even for those blessed with gainful and mostly uninterrupted employment, a multi-decade investment time horizon and generally favorable market conditions–is a feisty challenge, this process is best begun as young as possible.

For students and nascent professionals who dream of a ritzy retirement, an inability to simply borrow the cash necessary to support the preferred lifestyle in future years is a source of concern. Yet, as worrisome as this may be, there are many other equally troubling factors in play. As many workers who’re nearing retirement today will no-doubt loudly attest, simply having enough money to cover life’s basic necessities (keeping food on the table, a car on the road and a roof overhead) doesn’t necessarily rank among their most pressing economic concerns. Inflation, which slowly erodes the purchasing power of a buck (and, by extension, the value of one’s life savings) is another unwelcome wild-card in the awkward financial calculus of everyday life. Another no less significant economic variable is the future trajectory of taxes in an era of skyrocketing entitlement obligations. Collectively, these factors raise the bar a good fifteen feet when it comes to what young people must know about managing their money if they’re to successfully pole-vault their way over the retirement hurdle a half century from now.

Ironically, though teens and twentysomethings may not recognize the looming enormity of the financial adversity they face, a good many will be around to blow out the candles on their 100th birthday cakes. Thanks to steadily rising life expectancies, future generations of retirees are likely to spend as much as a third of their lives in retirement. From a social and economic standpoint, this is unprecedented. In the 1800s, people didn’t worry about having enough cash to see them through their golden years because, by and large, life-spans and work-spans were one and the same. Nowadays, it seems that people have rosier expectations for their sunset years. But, just as the question of retirement, and, perhaps more importantly, how to pay for it looms more menacingly in the minds of a graying U.S. population, the government and private sectors have discreetly begun tip-toeing away from their grandiose and once affordable socio-economic commitments. According to the Center of Retirement Research, among workers with retirement plans, the percentage covered by pensions has fallen from 83% to 30% from 1980 to 2006. Increasingly, workers are having to fund their own retirements. SmartMoney, April 2012, reports that Americans have $4.3 trillion parked in 401(k)s and similar defined contribution plans; a colossal jump from roughly zero four decades ago. The elimination of employer-sponsored pensions coincides rather suspiciously with workers’ growing dependence on tax advantaged and mostly self-funded retirement, education and healthcare savings accounts. Despite a growing chorus of concern about the post-boomer solvency of pay-as-you go entitlement schemes like Social Security, Medicare and Medicaid, many of those who’re nearing retirement today are likely to receive much of the economic support that politicians have promised them over the years. Subsequent generations of aspiring retirees, however, may need to rethink how they’ll bankroll their golden years. To which, outraged tax-payers might angrily respond “How could this possibly be?” Well, ironically enough, the answer has everything to do with people—lots of them.

In 1930, when the average life expectancy in the U.S. was 60, the number of Americans age 65 and older comprised a mere 5.4% of our nation’s population. Nowadays, that figure is 13%–and rising. Demographers refer to baby-boomers (the children of World War II veterans born between 1946 and 1964) as the “pig-in-a-python” because their numbers, when plotted alongside those of neighboring generations, produce a conspicuous bulge in an otherwise flat population distribution. In 1935, when Social Security became law, its future solvency seemed ironclad because the ratio of workers who were then paying into the system vs. those who drew against it was a lofty 40 to 1. In 2030, this ratio is expected to plummet to just 2 to 1. Although some might cavalierly dismiss the severity of this economic problem, in one respect, they’re absolutely right to do so because Social Security is the least of our country’s fiscal woes. A former high-ranking government economist agrees; in a March 2007 appearance on CBS’s 60 Minutes, David Walker, the United States’ ex-Comptroller General—Uncle Sam’s chief accountant—warned that the fiscal problems facing Medicare and Medicaid are roughly five times greater than those facing Social Security. Esteemed number crunchers at the Congressional Budget Office predict that, by 2026, Social Security and Medicare obligations will add another $6.6 trillion to our already sizable multi-trillion dollar budget deficit. Though politicians and economists often quibble about the magnitude of future outflows associated with entitlement spending, it’s clear that the cost of maintaining and extending present benefits to future generations of retirees will force our government’s already leveraged financial house into an ever-worsening state of fiscal hock. If the New Deal era envisioned and championed by FDR in the wake of the Great Depression elevated living standards for all U.S. citizens through a widespread sharing of social costs, then it appears that the New-New Deal era that’s replaced it—which, in turn, is characterized a growing reliance on tax-advantaged and mostly self funded savings accounts—signifies a dramatic retooling of a longstanding socio-economic contract.

To which, social safety-netters might rightly ask, “But, aren’t U.S. government finances prudently managed?” Swelling budget, current account and trade deficits argue otherwise. In answer to the question, “Is the U.S. bankrupt?” Lawrence Kotlikoff, an economics professor at Boston University, dutifully crunched the numbers and answers in the affirmative; he concludes, “The way to judge a nation’s solvency isn’t to measure its’ fiscal inflows and outflows from one year to the next—as our government is fond of doing it—but rather, to examine the lifetime fiscal burdens of current and future generations. Based on this broadened criterion, the current U.S. fiscal gap is roughly $65.9 trillion—more than five times U.S. GDP and almost twice our national wealth.” Somewhat helpfully, Kotlikoff goes on to suggest that “eliminating the current federal budget and trade deficits would require a doubling of personal and corporate income taxes, or a 66% reduction in Social Security and Medicare benefits.” According to a report by the Congressional Budget Office (CBO), the national debt–which is roughly 62% of GDP–will rise to 87% of GDP in less than ten years. It’s expected to reach 109% of GDP (its previous peak during World War II) by 2025 and hit 185% by 2035. After that, the economic outlook gets notably dimmer.

The writing, as they say, is on the wall; and the message is as deafening as a liberty bell smacked with a twenty pound sledge hammer. What are the economic tea-leaves whispering to generations X, Y, and Z? Welcome to the ownership society. Of course, this isn’t a well kept secret. Uncle Sam, who long ago anticipated the possibility of financial hardship for millions of working class Americans, took decisive action long ago by aggressively rewiring the tax code and making tax-deferred (and yes, even tax-free) retirement savings accounts available to taxpayers whose incomes don’t exceed arbitrary limits. The good news is that these powerful wealth building tools do indeed offer conscientious savers a significant economic advantage. The bad news, however, is that they only benefit those who use them.