Digital 401K Ran by Machines

 In digital, seasoned tech

Digital 401k Introductoin

One thing the government realized back in 1970s, thanks to Kodak, was that in order to help Americans plan for the retirement, they had to invest in their future. This was no small feat as government programs like Social Security were already coming under fire as population density continued to explode. The novel idea was to create an investment tool that was tax sheltered, as long as the money was invested in the wider market. The common worker is allowed to stow away future goodies for retirement without tax, and the markets continue to see capital pour into their coffers. This is what they call a win-win. The concept work for years, with paper trails and people yelling on the floor of the stock exchange. However, as the computer evolved, the digital 401k began to take hold. Suddenly, your account was slave to a computer.

The Digital 401k Controlled by a TabletAs convenient as the digital 401k became, no one could have foreseen the issues it would cause downstream for the little (wo)man in the broader markets. Stocks used to be so straightforward. You looked at a company’s income statement, balance sheet and cash flow to get an idea of how they conducted business. You then made your own determination of value based on their industry among other factors. Maybe even your human broker did this for you; after all, they had to earn a commission somehow. Then what happened? Oh that’s right, the internet and computer programming exploded, torching the old paradigm to the ground. So much for having control over your future.
What people underestimated was the volatility the digital 401k would see. Hedge funds grew, day traders became more frequent and news was instantaneous. Where people were once only reacting to what was in the morning news, the introduction of the digital world stimulated instant spikes in price fluctuation. Sadly, this could be in response to the most minor news on the planet. Yet, with the power to train in milliseconds, you have people popping in and out to make a buck. If the machines weren’t trained to move on trends, this wouldn’t be so bad.

The Digital 401k is a Market Hostage

    This has been a theory of mine for sometime, that the digital 401k is a slave to the algorithms that control the markets. Machines are finally taking over finance and there is nothing that can be done to slow the trend. Finally, articles are being written about algorithms impacting the broader market. The impact has finally trickled through the main stream market. Though if you have ever read anything about options trading, this is the bread and butter behind day trader activity. EVERYTHING is based on trends and volatility and people are evaluating these behaviors daily for signs of change.

   The basic idea behind machine intervention is that people write programs that are designed to watch the broader markets and make trades based on those volatility spikes or trend data. Most of these programs are based on past trading tendencies of big firms. The database behind these trends is staggering — we’re talking billions of data points across multiple companies. The programs are trained to spot these trends and move on these strategies 10X faster than any human possibly could.  Some have more sensitive trigger points than others which can lead to an avalanche of movement when they all trip themselves. In short, they can drive highly volatile behavior in many areas of the market.

Should my Digital 401K concern me?

   Maybe like most, you shouldn’t concern yourself. After all, if you are young enough and your savings are parked in index funds, you only care about the long haul anyway for your digital 401k. As a result, a typical reaction to market volatility would be indifference. On the bigger scale of things, it’s another example of where humans are happy to let programs run the day to day. Again, this stuff is based on human logic, so in some sense it would happen anyway, just maybe at a slower rate. But it sure takes the buying and selling of traditional companies based on their performance to a different level. The stock market has literally become a virtual game. The problem is they are playing with real money invested in your digital 401k.

The other reason you might care is it helps keep you grounded when these things happen. Maybe a stock you’ve always wanted goes on “sale” as a result of a machine selloff, creating a buying opportunity. For me, the reality is the same algorithms that sell them off, will gobble them right back up again from similar trends that trigger buys. Though, my own experience tells me recovery takes longer than the selloff. So as always, best of luck taking on the machine.

Like this column? Please follow Jarkable on the social media platform of your choosing for updates to all the latest postings!

Recommended Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ping Us

Out finding Jarkable content. But you can send us an note and we'll get back to you, asap.

Not readable? Change text. captcha txt