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CNN Live Saturday

Interview With Vera Gibbons

Aired January 19, 2002 - 17:16   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JEANNE MESERVE, CNN ANCHOR: Turning now to the downfall of energy trading giant Enron. Thousands of workers lost their pensions and life savings in the collapse of the company, and that's raised questions for many of us: Just how safe are our 401(k) investments and how can we best protect our retirement savings? For some insight into that, we're joined now by Vera Gibbons from "SmartMoney" magazine. She is with us from New York. Thanks a lot for coming in this afternoon.

VERA GIBBONS, "SMARTMONEY" MAGAZINE: Hi, Jeanne, thank you for having me.

MESERVE: Well, obviously the Enron employees learned a very painful lesson, but what should the rest of us take from their experience?

GIBBONS: Well, you're right. The Enron case is to some degree an isolated case, because this is a case about financial fraud, but there are some lessons to be learned from this. Lesson number one, do not put all of your eggs in one basket, no matter how much faith you have in the management, no matter how secure you feel at your job, you do not want to put all of your eggs in one basket.

The Enron employees of course learned their lesson the hard way. Many of them hedged their future to the company's stock, and now they are out hundreds of thousands of dollars. So it is important that you stay diversified. You want to have some stocks, some bonds, some cash, and you want to stick to enough allocation that is both age- and goal-appropriate. There are resources out there to help you, not only our Web site, SmartMoney.com, but a slew of others: MorningStar, Fidelity, FinancialEngines.com. You don't want this kind of catastrophe to happen to you. I mean, some of these Enron employees put 50, 60 percent in company stock.

MESERVE: Are you still four square behind 401(k)s? Are they still the best thing to do?

GIBBONS: They are. They are still the best retirement vehicle that we've got out there. They are the easiest way to stash away money, and of course the new tax laws allow us to contribute more and more money. The maximum contribution levels have gone up to $11,000 this year, and they are going to go all the way up to $15,000 in 2006. So I wouldn't let this Enron incident deter you; 401(k)s are still the best way to save money in the long term. So if your company has a 401(k) plan, you want to be in it.

MESERVE: Are some changes in store? What's Congress working on vis-a-vis 401(k)s?

GIBBONS: There are some bills that are out there to prevent this type of Enron disaster from happening again. Retirement Security bill, put forth by Jon Corzine, and that would restrict you from putting too much in company stock, they would cap that at 20 percent, and you would be able to move out of company stock match contributions in just 90 days. You wouldn't have to hang on to it, as the Enron employees did, until the age of 50. Some companies make you hang onto the stock until the age of 55.

So if your company does have restrictions, find out what they are in advance, find out what they are when you sign up for the plan, and if there are restrictions, then obviously you want to make sure you are diversified. You want to have some conservative investments to make sure that you're not overly exposed in certain areas.

MESERVE: The stock market is not looking too robust at the moment. Does that change your recommendations on how someone should allocate their funds at the moment?

GIBBONS: Well, no, obviously if you're older you want to be more in conservative -- you want to be more conservative in your investments. You want to be in bonds, the bond funds, other fixed income investments. If you're younger, you can have a higher percentage of your portfolio in stocks. Same sort of deal.

But I would say, don't let this Enron incident deter you from saving. If you're making $50,000, and you're stashing away, say, 6 percent in your 401(k) plan and you're assuming a 7 percent rate of return over five years, you're going to have $15,000. But the company is matching you at just 3 percent, you're going to have about $26,000, so that's $9,000 more, simply for participating in your company's plan.

MESERVE: OK, we have to leave it there. Vera Gibbons, "SmartMoney" magazine, thanks a lot for coming in.

GIBBONS: Thanks, Jeanne.

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