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Another Way to Save (Invest) for Retirement

Another Way to Save (Invest) for Retirement


Summary
    The vast majority of workers must rely almost entirely on their company-sponsored retirement plans for their saving and investing. Such plans depend largely on mutual fund offerings, which have underperformed the market in general.
    Employers can expand the retirement savings/investing options that they now offer to allow the employee immediate control over his or her investing. This option incorporates direct stock ownership and entails less investing risk-resulting in more peace of mind for the employee and less responsibility for employers.
    Employers can provide this benefit for a small annual fee (paid by the employer) that would otherwise cost each employee $100.

Rethinking Retirement Benefit Options

Where retirement planning is concerned, as an employer, you probably would like to provide the widest possible range of choices. What's more, you probably think of providing those options within your company's 401-k plan.

    An increasingly popular option that may be new to you
    It might be wise to rethink the latter premise. Employees might like the option to take control of their own investing decisions-without government-imposed limitations (for instance, assets can't be withdrawn without penalty until after a certain age is reached and mandatory withdrawals are imposed after a certain age).  
    What's more, when assets are withdrawn from retirement plans, they are taxed as ordinary income. Your employees would appreciate having the same preferred-tax treatment afforded capital gains that have long been enjoyed by larger investors. Although their financial resources may not be adequate to justify traditional investing through a brokerage account, they can easily afford to invest through direct investment plans, which are offered by many high-quality, dividend-paying companies.
    An "add on" that can have a huge impact on employees results

Here's an "add on" to your benefits package that will deliver a benefit that your employees will value and that will not be costly for your company. That benefit is accounts registered in his or her name (or the name of his or her IRA) directly on the books of the companies that the employee tells you that he or she wants to own and invest in over the years.

Once that account is open, the employee can send investments directly to the account without further assistance from you. However, if you wish to provide this opportunity within a retirement plan, the investments can be handled through your payroll service provider. (See attached Payroll Provider information.)

    Limit your Risk

Consider the following: The stock market has proved to be the most effective way to build wealth over the long term. The problem is that investors need to contribute substantial sums to buy round lots, which limits the amount of diversification they can afford. That's why you are likely offering your employees mutual funds in their 401(k)s.

Mutual funds have inherent problems: They charge fees, they tend to underperform the market in general, and fund management is often forced to make buying and selling decisions based on shareholders redemption requests (often based on emotional reactions). Fortunately, there is another way to invest. That way is as least as good and more than likely-much better.

That better way to invest is through direct investment plans (DRIPs). DRIPs help minimize investment risk for your employees and can help them build wealth over the long term. DRIPs can also minimize your risk as a benefits executive.

    Let Your Employees Decide
    Many employers offer a selection of mutual funds for their 401(k)s. There's no reason why you would have to change your current offerings. You can expand on them by giving employees the opton to invest directly in any company that they choose.  In effect, the employee can create his or her own mutual fund and invest regularly or as he or she sees fit.
    There are more than 1,000 companies that offer DRIPs. Your company may be one of them. 3M does, so do Philip Morris, Intel, Harley-Davidson, Johnson & Johnson, and hundreds of others. There are companies in virtually every industry that provide this option to their shareholders. Your employees make the decision about which companies to buy into--and how much and how often to invest.
    Even the lowest paid employees, ones with minimal disposable income, can participate. That's because the companies' DRIPs accept dollar amount investments of as little as $25. While fees have been added to some plan, many DRIPs charge no fees for investing and reinvesting dividends transactions.
    With a focus on the long term, your employees can build toward a more secure future by making regular dollar-cost averaging investments on any schedule they choose--or can afford. When the price of a stock is high, the investment buys fewer shares but when the price is low, it buys more shares. This systematic approach is appealing to smaller investors who feel comfortable in the knowlege that they are attending to their future needs.


History of Direct Investment Plans
    Direct Investment plans came into being as a result of legislations in the 1960s. The plans were approved with the caveat that the companies were not to promote the existence of their plans, perhaps in order to protect the interests of the brokerage industry.

    The Securities and Exchange Commission describes Plans in part as follows:
   

    Direct Stock Purchase Plans (DSPs): Some companies allow investors to purchase or sell stock directly through them without having to use or pay commissions to a broker. But there may be a fee for using the plan's services. Some companies require that an investor already own stock in the company or be employed by the company before they may participate in their direct stock plans.



About the Company that Facilitates DRIP Enrollments

Temper of the Times Investment Services is a registered broker dealer that is licensed in all 50 states. Unlike traditional broker/dealers, the Temper Enrollment Service (TES) registers stock in the users name and not in "street name." It provides an efficient way to open a DRIP account. The Temper Enrollment Service (member NASD, SIPC) specializes in helping investors become enrolled in DRIPs. Temper has opened more than one million DRIP accounts.

    Temper receives a fee for each direct investment plan that it opens for an individual. It buys the initial qualifying share (or up to 100 shares) in the customer's name, deals with the transfer agent to get the account open, and sends the customer notices in accordance with FINRA reporting rules. It charges a one-time fee for the service and receives no further fees for subsequent investments in that stock.
    Temper is in contact with the transfer agent until the account is opened. The customer is expected to remit enough money to cover the cost of the share(s), the service fee(s), and a 10% refundable cushion against any upward movement in the market price of the stock. Any excess funds are returned with the final accounting, at which time any underpayments are billed. Customers may choose to allow any unused portion of the cushion to fund the "Temper of the Times Foundation--Advertising for the Environment," a foundation supported by the Company.


Next Steps
    Details from the plan prospectuses for every company that offers a DRIP

If you wish to sponsor Group DRIP Club Membership, a small annual fee would entitle any or all of your employees to full access to our comprehensive database. What's more, the employee would be entitled to the lower enrollment fee granted members, if he or she should wish to become enrolled in a company DRIP.

The yearly fee that you pay will entitle each of your employees to enjoy all the benefits of individual membership as part of your group.

    In addition to, but independent of the Company, is the mutual fund MP63 Fund (Drip X). The fund is made up of 63 companies selected because of their performance and because they offer direct investing plans.  The fund is 4 Stars at Morningstar. You may wish to include it among the fund offerings in your company 401 (k).


Moneypaper and Temper of the Times Investor Services, Inc.
    Since 1981 Moneypaper has been a leading source of financial information for nontraditional investors: investors of modest means.
    While traditional brokers were not then and are not now interested in such customers, the Company created a market for investing services among individuals of modest means. The alternative investing approaches it provides are responsible for bringing hundreds of thousands of new investors to the financial markets.
    The market for company products is in its infancy. Most people do not know that they can invest without a broker and utilize the investing strategies that this manner of investing makes possible. The direct investing option is desirable, valuable, and destined to become popular.
    Not ONLY the Rich Can Get Richer
    The Company is known for its lower-risk methods of investing. It has succeeded in dispelling the myth that stock ownership is appropriate only for affluent individuals. That perception, based on the cost of entry and the risk associated with equity investments, was and is still largely true--as many stock investors have discovered.
    Individuals who adopted the alternative approaches the Company provides have accumulated substantial assets and are now in a position to benefit from more traditional investment products.
    Direct Investing and the strategies that become available because of it (dollar-cost averaging and wide diversification of assets), are acknowledged to be valid by financial professionals and knowledgeable members of the financial media.
    A Vast Market for the Company's Products and Services
    While stock ownership accounts for much of the wealth accumulated, only a small percentage of all households actually own stocks. Many people avoid stock ownership believing that they can't afford proper diversification and are concerned about the risk involved in investing. Those concerns are justified if they were to invest with a traditional broker.
    The Company Responds to those Investors' Concerns
    Here's how: Most DRIPs will accept very small investments, even as little as $10 or $25 at a time. By accumulating shares of stock in DRIPs over a period of years if not decades, individuals can employ strategies that would otherwise not be available to them. Those strategies include wide-diversification among companies and dollar-cost averaging. Small investors would not be able to implement these strategies through a traditional broker, no matter how small the commissions. (see analysis)
    Companies that offer DRIPs, in general, are larger-cap companies with histories of paying dividends. These are popular companies and include most of the companies that make up the Dow Jones Industrial Average.
    A New Market for Stock Investments
    There is a pent up demand among individuals (including your employees) to obtain the benefits of stock ownership. At the same time, the brokerages are not interested in serving people with small accounts and are adding fees to discourage them from seeking service. These people can be served efficiently with the products the Company provides.
    Increasingly, people recognize the need to start early to prepare for their retirement. A calculator at the directinvesting.com website illustrates the effect of compounding and the advantage of starting to invest at an early age. The results displayed depend on achieving a high average annual investment returns over the long term. Yields such as those needed, can only be achieved by stock ownership.
    Projects such as "Jump Start" are being funded with public money. This sought after public benefit is in keeping with the goals of the Company, which is to level the playing field between large and small investors and to provide a way for people to responsibly take advantage of the benefits of stock ownership.
    The Company facilitates fundamental changes in the way people invest.
    Directinvesting.com ranks high on Internet search engines without spending any money on Internet advertising. Its position in these rankings is a testament to the interest in alternative ways to invest and, specifically, to the interest in direct investing.
    Members of the general public, including those who make up the lower 90% of the population in terms of income, are seeking responsible long-term approaches to investing.  After the recent volatility in the stock market, people recognize the need for strategies to protect against market swings and the emotional responses that those swings bring about. The lump-sum investing approach depends on speculating on the short-term direction of the market. The DRIP approach minimizes such speculation.
Products and services for this market are the underpinnings of a new Industry, which might be called "Direct Investing."
    Indeed, the term "direct investing" may have become part of the language due to the impact of the Company direct investing program. The term "Direct Investing" was applied to traditional investing by such firms as Harris Direct (which was acquired by ETrade) and ING Direct. This is a misuse of the name but implies the recognition of the importance of a new approach to investing even among traditional investors.


Facts
    The company was founded in 1980 as Temper of the Times Communications Inc. publisher of The Moneypaper a Financial Publication for Women, a sub-chapter S corporation. Sometime thereafter, it became gender neutral. It split in 1996 to form the two companies that now exist. The Company is located in a corporate campus office building in Rye, NY, which is about 30 minutes from New York City.

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