Workers saving for retirement in 401(k) accounts and Individual Retirement Accounts (IRAs) face several risks. Among other challenges, they may pick the wrong investments such as stocks in companies that don’t invest for the long-term and thus do not generate the long-term returns that savers need for a safe retirement. Those saving for retirement after all need to plan, save and invest for several decades. This investment risk is particularly large if people who invest their hard earned dollars do not really know what companies are up to. .
Current regulations do not require comprehensive, consistent and comparable information on the potential risks a firm faces from pollution and climate change. Firms also do not have to show, for instance, how much they invest in worker training –an indicator of worker productivity. And, companies do not have to consistently report on good governance such as avoiding conflicts of interest and increasing diversity. Importantly, firms are unlikely to willingly show information that is unflattering to them and that could adversely affect their stock price. Without regulations to require more and better disclosure of the relevant information, workers are putting their faith in companies, as one of their few avenues to benefit from long-term market appreciation, without knowing whether those firms are actually doing what is necessary to boost long-term growth. As a result, workers end up facing a greater chance that their investments could go wrong in their savings than they are aware of. What investors don’t know will actually hurt them and their retirement income.
The above excerpt was originally published in Forbes.
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