How do I create an all-American 401(k)?

  @Money November 6, 2012: 12:21 PM ET
NEW YORK (Money Magazine)

How can I find out if my 401(k) funds are invested in companies that ship American jobs offshore? -- Kevin, Thousand Oaks, Calif.

The issue of American companies outsourcing jobs to foreign countries has gotten lots of attention throughout the presidential race. That's not surprising. Any move that's perceived as hurting already struggling American workers is going to arouse controversy and passions.

But at the risk of offending you and others who may see this practice as unpatriotic or worse, my advice is that you put this issue aside when deciding how to invest your 401(k), or any other savings for that matter.

I say this for several reasons. One is that I don't know of any rigorous way to identify firms that ship or may ship jobs offshore. It's not something you can screen for like rising revenues, low price-earnings ratios or a high return on equity.

And while it's easy to say you don't want to invest in firms that export American jobs, it's quite another to determine which companies you would consider guilty of that offense.

For example, if a large company shifts an operation abroad resulting in the loss of 100 U.S. jobs, then later that year hires an added 100 people at a different U.S. division, would you still consider it a job exporter even though the overall count of American jobs stayed the same? What if the company added 200 jobs here, giving it a net gain?

Related: Ground rules for retirement investing

Or how about this scenario: Two identical companies make video game controllers, except one has always imported joysticks from abroad while the other has always made them in its own facility here.

Suppose the company that makes its own joysticks closes its plant here and builds one in a foreign country to lower costs and stay competitive. Presumably it would be guilty of shipping jobs overseas, while the company that has always imported joysticks wouldn't be, as it never had a joystick plant in the U.S. to close. But are the two companies really doing anything different?

Of course, I suppose you could say you wouldn't want to invest in the company that imports joysticks either as it could use an American manufacturer of the components instead. But if you start eliminating companies because they import parts from abroad, you're going to have a small universe of companies to choose from when putting together a portfolio.

Foreign stocks: Safe for retirement?

Even if you could come up with some broad principles to sort out such complexities, you would still run into practical difficulties on the investing front.

For one thing, most 401(k)s offer a menu of mutual funds or similar investment pools that contain hundreds or even thousands of businesses. Assuming you go to the trouble of sifting through all the companies in a fund in hopes of identifying job exporters, you still wouldn't be able to exclude offenders.

When you invest in a fund, you get all the companies in that fund. You can't pick and choose companies within a fund. You could decide not to invest in that fund. But I suspect that almost any fund in a 401(k) roster is going to include at least some companies that have relocated operations abroad, or that might in the future.

Related: Why there's no such thing as risk-free investing

Finally, even if you were somehow able to create a portfolio made up solely of companies that haven't shipped jobs overseas and won't in the future, I'm not sure it would be a portfolio you would want to own purely from an investing point of view. At the very least, I expect it would be difficult to build a truly diversified portfolio operating under that jobs constraint. In any case, building such a portfolio would require a huge amount of time and effort, not to mention expertise.

Bottom line: If you want to make outsourcing a factor in choosing political candidates or you want to advocate for specific policies in this area, go for it. But when it comes to investing your 401(k), I recommend you ignore this issue and focus on building the best retirement portfolio you can. To top of page



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