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(Wall Street on Parade)   If you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street   (wallstreetonparade.com) divider line 78
    More: Sad, Wall Street, index funds, document review, consumer price index, Covington & Burling, Vanguard Group  
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2858 clicks; posted to Business » on 29 Apr 2013 at 11:23 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-04-29 11:05:25 AM  
Astonishing...but simple time-value equations, really.
 
ZAZ [TotalFark]
2013-04-29 11:15:16 AM  
If I recall correctly, in Fixing the Game Roger Martin describes the 2% fee as a relatively new way for the system to make money. Possibly it came after the crackdown on "churning" in the 1990s.
 
2013-04-29 11:16:22 AM  
Here's how to tell if you're a sucker or not: if your fees are over 0.8% annually, you're a sucker.

/billionaire hedge fund investors excepted
 
2013-04-29 11:20:46 AM  
Yes.  And?
 
2013-04-29 11:30:26 AM  
12b-1 fees, adviser fees, advertising costs, audit fees, participant cost fees, etc. Yes those could add up to 2% in a managed fund. You also don't pay taxes on what gets put into the fund. So lets calculate what happens if you pay taxes on the same amount:

100,000 - 30% goes to taxes = 70,000 over 50 years @7% = 2,000,000 vs their 1,200,000 so a delta of $800k. Also take into consideration that most companies match to an extent what you put in. In my companies case it's up to 33% of my contribution which I max out annually. My plan actually charges a little less than 1% for all junk fees including only .5% on 12b-1 fees.

The net is I win by using a 401k. Maybe not everyone does and if that's the case then invest yourself on Etrade or whatever and only pay a 10 dollar fee for transactions. These days there is no excuse for being an uninformed investor.

This is purely an anti-wallstreet article as can be seen by them mixing in the toxic investments on home mortgages with 401ks. One has nothing to do with the other..
 
2013-04-29 11:30:56 AM  
Both sides are bad, so vote mattress?
 
2013-04-29 11:35:52 AM  
So the system works exactly as it was designed, then?  Or is the complaint that Wall Street isn't getting the full sum?
 
2013-04-29 11:36:52 AM  

xynix: 12b-1 fees, adviser fees, advertising costs, audit fees, participant cost fees, etc. Yes those could add up to 2% in a managed fund. You also don't pay taxes on what gets put into the fund. So lets calculate what happens if you pay taxes on the same amount:

100,000 - 30% goes to taxes = 70,000 over 50 years @7% = 2,000,000 vs their 1,200,000 so a delta of $800k. Also take into consideration that most companies match to an extent what you put in. In my companies case it's up to 33% of my contribution which I max out annually. My plan actually charges a little less than 1% for all junk fees including only .5% on 12b-1 fees.

The net is I win by using a 401k. Maybe not everyone does and if that's the case then invest yourself on Etrade or whatever and only pay a 10 dollar fee for transactions. These days there is no excuse for being an uninformed investor.

This is purely an anti-wallstreet article as can be seen by them mixing in the toxic investments on home mortgages with 401ks. One has nothing to do with the other..



That's a lot of numbers but none of it changes the fact that unless the fund is earning more than index funds over a significant period of time none of that matters.  And since huge numbers of managed funds do worse than index funds you get the double dildo of pleasure of paying outrageously for a managed fund at worse rates of return.
 
2013-04-29 11:37:09 AM  
This is the one thing i miss about leaving my government job. The TSP (federal employee version of a 401(k)) only have 0.03% fees on the plan.
 
2013-04-29 11:38:19 AM  

xynix: 12b-1 fees, adviser fees, advertising costs, audit fees, participant cost fees, etc. Yes those could add up to 2% in a managed fund. You also don't pay taxes on what gets put into the fund. So lets calculate what happens if you pay taxes on the same amount:

100,000 - 30% goes to taxes = 70,000 over 50 years @7% = 2,000,000 vs their 1,200,000 so a delta of $800k. Also take into consideration that most companies match to an extent what you put in. In my companies case it's up to 33% of my contribution which I max out annually. My plan actually charges a little less than 1% for all junk fees including only .5% on 12b-1 fees.

The net is I win by using a 401k. Maybe not everyone does and if that's the case then invest yourself on Etrade or whatever and only pay a 10 dollar fee for transactions. These days there is no excuse for being an uninformed investor.

This is purely an anti-wallstreet article as can be seen by them mixing in the toxic investments on home mortgages with 401ks. One has nothing to do with the other..


how many companies match up to 33% of what their employees put in?
 
2013-04-29 11:39:59 AM  
 
2013-04-29 11:41:31 AM  
Vanguard ETF Expense Ratios:

VTI - Vanguard Total Stock Market: 0.05%
BND - Vanguard Total Bond Market: 0.10%

Both commission free.  Buy in whatever stock/bond ratio is appropriate.  Hold to retirement.  Is it really that hard?
 
2013-04-29 11:42:37 AM  

gochuck: https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml

LOL at private 401k funds!


I imagine Boehner and company have some sort of plan in the works to convert the TSP into a private 401k, at least for everybody that is not a member of congress.
 
2013-04-29 11:44:40 AM  

buzzcut73: gochuck: https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml

LOL at private 401k funds!

I imagine Boehner and company have some sort of plan in the works to convert the TSP into a private 401k, at least for everybody that is not a member of congress.


I've heard that the big 401k management companies truly hate TSP and lobby pretty hard to kill it.
 
2013-04-29 11:45:42 AM  

AngryDragon: Vanguard ETF Expense Ratios:

VTI - Vanguard Total Stock Market: 0.05%
BND - Vanguard Total Bond Market: 0.10%

Both commission free.  Buy in whatever stock/bond ratio is appropriate.  Hold to retirement.  Is it really that hard?


I'd throw in some VEU (VTI is domestic stocks only) at 0.15% for somewhere between a quarter and third of your stock holdings, but yeah, pretty much.
 
2013-04-29 11:47:09 AM  

AngryDragon: Vanguard ETF Expense Ratios:

VTI - Vanguard Total Stock Market: 0.05%
BND - Vanguard Total Bond Market: 0.10%

Both commission free.  Buy in whatever stock/bond ratio is appropriate.  Hold to retirement.  Is it really that hard?


That's why I'm pretty much all-in with Vanguard.  One of these days I'll wrangle in some old 401(k)s.
 
2013-04-29 11:47:14 AM  
WHAT??? You mean the Worker-Capitalist paradigm the neocons sold us was a scam? Let me show you my shocked face!
i18.photobucket.com
 
2013-04-29 11:48:56 AM  
About those TSP reports, yeah, we're going to need them with a cover sheet.......
 
2013-04-29 11:48:57 AM  
why the fark would your fees be 2%?  Index fund fees are generally around 0.1%.  maybe as high as 0.3% if you have a particularly crappy 401(k).
 
2013-04-29 11:51:07 AM  

xynix: 12b-1 fees, adviser fees, advertising costs, audit fees, participant cost fees, etc. Yes those could add up to 2% in a managed fund. You also don't pay taxes on what gets put into the fund. So lets calculate what happens if you pay taxes on the same amount:

100,000 - 30% goes to taxes = 70,000 over 50 years @7% = 2,000,000 vs their 1,200,000 so a delta of $800k. Also take into consideration that most companies match to an extent what you put in. In my companies case it's up to 33% of my contribution which I max out annually. My plan actually charges a little less than 1% for all junk fees including only .5% on 12b-1 fees.

The net is I win by using a 401k. Maybe not everyone does and if that's the case then invest yourself on Etrade or whatever and only pay a 10 dollar fee for transactions. These days there is no excuse for being an uninformed investor.

This is purely an anti-wallstreet article as can be seen by them mixing in the toxic investments on home mortgages with 401ks. One has nothing to do with the other..


Well yeah, but if your company gave you some better investment options (i.e. they aren't getting kickbacks or lower fees) then you could avoid most of that 2% AND get all of those benefits.  I'm lucky there at least, most of the places I've worked have offered index fund options.

http://www.fark.com/comments/7724036/83900818#c83900818" target="_blank" data-cke-saved-href="http://www.fark.com/comments/7724036/83900818#c8 3900818">AngryDragon: Vanguard ETF Expense Ratios:

VTI - Vanguard Total Stock Market: 0.05%
BND - Vanguard Total Bond Market: 0.10%

Both commission free. Buy in whatever stock/bond ratio is appropriate. Hold to retirement. Is it really that hard?


It is because everybody thinks they are an investment genius or can be convined to pay 2% to somebody they think is a genius.

I always laugh at people I know who claim they are able to beat the market on their investments.  Right, if some guy who get's paid millions a year and has a huge research staff can't do it, then why do you think you can? Sure, some get lucky but your retirment investing is not supposed to be a form of gambling.  Save that for Vegas where you at least get comped some drinks.
 
2013-04-29 11:52:59 AM  

gochuck: buzzcut73: gochuck: https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml

LOL at private 401k funds!

I imagine Boehner and company have some sort of plan in the works to convert the TSP into a private 401k, at least for everybody that is not a member of congress.

I've heard that the big 401k management companies truly hate TSP and lobby pretty hard to kill it.


TSP is basically an index fund, so the fees would naturally be lower. just sayin'
 
2013-04-29 11:55:11 AM  
 

Waldo Pepper: how many companies match up to 33% of what their employees put in?


Most companies will match 100% up to a specific percentage of an employees' salary. For example I put 3% of my salary in a plan and my employer matches it. I can put more but since there's no match after 3% there's personally better investments for the rest of my money.

And 2% in fees is really high unless you've chosen an actively managed fund. You should just pick something with decent returns and park your money for 20 years. Keep an eye on it in case the fund drops but remember, you're investing not playing the stock market. You don't need to move money everyday.
 
2013-04-29 11:57:54 AM  
Are they still trying to claim 7% long term returns? Sure, if you invested before 98. After then, the market's been so up and down that when you invested has more of an impact than how long. Smooth out the S&P 500 graph over the last decade - it's basically flat.
 
2013-04-29 11:59:24 AM  
In my life as a financial adviser and registered rep (stock broker), I recommended index funds in most cases. In most cases the index funds beat managed funds in the short run, and when you figured in fees, the lower costs of index funds beat managed funds over the long run in almost every case.

General Rules for your 401k
1:take advantage of your employers match.
2:invest for the long term
3:use lower cost funds and index funds
4:NEVER take out a loan on your 401k

People do some extremely stupid things with their money. I've seen people turn down a 100% match because they thought the stock market was a "racket". Of course since I set up the companies 401(k) as a safe harbor plan, they had access to a money market, and several index fund choices. The example I gave was: you earn $1-if you take that in pay, you only take home about 70 cents as pay. Or you can put that same dollar in the companies 401(k), you will get the full dollar invested in your choice of funds, and your employer will also put a dollar away for you (up to 3% of income). Why would you not at least take advantage of the match?
 
2013-04-29 12:03:49 PM  

BigBooper: In my life as a financial adviser and registered rep (stock broker), I recommended index funds in most cases. In most cases the index funds beat managed funds in the short run, and when you figured in fees, the lower costs of index funds beat managed funds over the long run in almost every case.


A little offtopic, but I'd love to pick your brain some time about your line of work.  I've heard from CFPs and others that it's still primarily a sales job (especially early on), but the idea of providing such critical education to people intrigues me.
 
2013-04-29 12:03:57 PM  

To The Escape Zeppelin!: Waldo Pepper: how many companies match up to 33% of what their employees put in?

Most companies will match 100% up to a specific percentage of an employees' salary. For example I put 3% of my salary in a plan and my employer matches it. I can put more but since there's no match after 3% there's personally better investments for the rest of my money.

And 2% in fees is really high unless you've chosen an actively managed fund. You should just pick something with decent returns and park your money for 20 years. Keep an eye on it in case the fund drops but remember, you're investing not playing the stock market. You don't need to move money everyday.


I understand a company match, I've just never seen anything above a 5% match, maybe 10% tops.
 
2013-04-29 12:05:57 PM  

Waldo Pepper: I understand a company match, I've just never seen anything above a 5% match, maybe 10% tops.


You say that as if 10% free, tax-free money is insignificant.
 
2013-04-29 12:12:09 PM  
FYI: "Looking at the total plan expenses, including administrative and record-keeping fees, the <a data-cke-saved-href="http://www.shrm.org/hrdisciplines/benefits/Articl es/Pages/401k-Feesecl ined.aspx">401(k) Averages Book found that the average total expense for a small plan in 2012 was 1.46%, with a range between a low of 0.38% and a high of 1.97%. Investment fees continued their downward trend. Small plan average investment expenses declined from 1.38% in 2011 to 1.37% in 2012, and large plan average investment expenses declined from 1.05% to 1.00%"

Using 2% as an average fee is bull sh*t. The true average fees are still way too high, but if we're going to have a discussion, lets use real numbers, shall we?
 
2013-04-29 12:15:33 PM  

Marcus Aurelius: Here's how to tell if you're a sucker or not: if your fees are over 0.8% annually, you're a sucker.

/billionaire hedge fund investors excepted


You're right -- billionaire hedge fund investors are huge suckers.
 
2013-04-29 12:15:48 PM  

BigBooper: Why would you not at least take advantage of the match?


I work with a woman who advised me not to take advantage of the match because I was young and there would be plenty of time to save for retirement later. She was easily the dumbest person on the floor.
 
2013-04-29 12:18:04 PM  

BigBooper: Using 2% as an average fee is bull sh*t. The true average fees are still way too high, but if we're going to have a discussion, lets use real numbers, shall we?


Yep.  not sure why they are using inflated numbers.  I guess scaremongering is really the in thing right now.  Nearly alll of my funds have expension ratios from 0.5% to 0.9%.
 
2013-04-29 12:26:54 PM  

thurstonxhowell: BigBooper: Why would you not at least take advantage of the match?

I work with a woman who advised me not to take advantage of the match because I was young and there would be plenty of time to save for retirement later. She was easily the dumbest person on the floor.


I am continually amazed by how many people (friends of mine, even) don't put in enough to get the full match.
 
2013-04-29 12:27:34 PM  
Using 0.6% would give you $845,560 in fees, or a reduction of ~26%.

If there were ZERO fees, after 50 years you'd have $3,278,041.
If there were a 0.6% fee, after 50 years you'd have $2,432,481.

Difference of $845,560.
 
2013-04-29 12:27:37 PM  

GoldSpider: BigBooper: In my life as a financial adviser and registered rep (stock broker), I recommended index funds in most cases. In most cases the index funds beat managed funds in the short run, and when you figured in fees, the lower costs of index funds beat managed funds over the long run in almost every case.

A little offtopic, but I'd love to pick your brain some time about your line of work.  I've heard from CFPs and others that it's still primarily a sales job (especially early on), but the idea of providing such critical education to people intrigues me.


As an independent, I didn't have to sell any crap. Too many advisers are told what to push on people. Me, I would never be able to work under that kind of system. If I tell someone that my advice is based only on what I believe to be in their best interest, then that's the advice I gave them. Unfortunately, the money isn't in the truth. On a 401(k) plan with about ten million under management, I earned twenty basis points (two tenths of 1%). If I sold annuities, I would have made 7-10%. That's right, up to 50 times as much money.

What do you think people are going to sell?
 
2013-04-29 12:27:42 PM  

Waldo Pepper: To The Escape Zeppelin!: Waldo Pepper: how many companies match up to 33% of what their employees put in?

Most companies will match 100% up to a specific percentage of an employees' salary. For example I put 3% of my salary in a plan and my employer matches it. I can put more but since there's no match after 3% there's personally better investments for the rest of my money.

And 2% in fees is really high unless you've chosen an actively managed fund. You should just pick something with decent returns and park your money for 20 years. Keep an eye on it in case the fund drops but remember, you're investing not playing the stock market. You don't need to move money everyday.

I understand a company match, I've just never seen anything above a 5% match, maybe 10% tops.


I work for a state university and I have to admit the retirement plan is quite nice (but not private company, so this may be apples to oranges)

I can contribute up to 6% of my salary and my employer contributes 10%.  Since the employers contribution is higher than my own, I don't think the term 'match', really applies.  And to the other commenter's point, most of the funds I have chosen have about 0.05 to 0.15% fees.  Vangaurd has some really nice options.
 
2013-04-29 12:33:13 PM  

BigBooper: As an independent, I didn't have to sell any crap. Too many advisers are told what to push on people. Me, I would never be able to work under that kind of system.


Same here.  If I were to get into that field, the last thing I'd want to do is try to fleece old people out of their savings.

BigBooper: What do you think people are going to sell?


I understand a lot of would-be CFPs start in either large brokerage firms or insurance companies.  I'd probably feel a little less uncomfortable in the latter.
 
2013-04-29 12:33:31 PM  

GoldSpider: Waldo Pepper: I understand a company match, I've just never seen anything above a 5% match, maybe 10% tops.

You say that as if 10% free, tax-free money is insignificant.


well compared to 33%.  I was just curious if this guys 33% match was way out of the normal.
 
2013-04-29 12:34:36 PM  

To The Escape Zeppelin!:
And 2% in fees is really high unless you've chosen an actively managed fund. You should just pick something with decent returns and park your money for 20 years. Keep an eye on it in case the fund drops but remember, you're investing not playing the stock market. You don't need to move money everyday.


While we're on the subject of fees, even if you do need to move money every day (and you're right - you don't), for fark's sake, that's what ETFs are for. At least for equities, mutual funds are obsolete. They're a victim of their own success.

Mutual funds made a lot of sense back in the day in which a stock trade involved a voice telephone call to a human being, the placement of an order, and a $100+ commission per trade. They helped bring a lot of people into the market who would never have been able to afford those exorbitant commissions, especially not with $10K-100K account sizes. But that was 30 years ago: most investors got their stock quotes by reading tomorrow's paper, and the most advanced thing on anybody's desk was an Apple ][+ running VisiCalc.

I might, after a few beers, even accept that mutual funds make sense in the early era of the "discount" brokerage, when a trade commission was $30, and there was still no practical way to just "buy the index."

But in the present day, and using the cited 2% expense ratio, a hypothetical $50K portfolio will generate $1000/year in fees. That's egregious. At $8/trade, even a retail investor should have trouble racking up $1000/year in fees. (And if you're making 125 trades per year on a $50K account, you're not investing, you're trading.)

The mutual fund value proposition makes little sense in an era in which a trade costs $8. If your objective is diversification, start with something like a large-cap ETF, a small-cap ETF, a bond ETF, a money market fund, and hire a fee-only adviser to help you reallocate your assets between those sectors.
 
2013-04-29 12:44:00 PM  

Waldo Pepper: To The Escape Zeppelin!: Waldo Pepper: how many companies match up to 33% of what their employees put in?

Most companies will match 100% up to a specific percentage of an employees' salary. For example I put 3% of my salary in a plan and my employer matches it. I can put more but since there's no match after 3% there's personally better investments for the rest of my money.

And 2% in fees is really high unless you've chosen an actively managed fund. You should just pick something with decent returns and park your money for 20 years. Keep an eye on it in case the fund drops but remember, you're investing not playing the stock market. You don't need to move money everyday.

I understand a company match, I've just never seen anything above a 5% match, maybe 10% tops.


My company matches 6%.
 
2013-04-29 12:56:37 PM  

BigBooper: they thought the stock market was a "racket".


You mean it's not?
 
2013-04-29 12:59:23 PM  
Lotta Vanguard fanbois in this thread.

If you'd like to know more, check out the Bogleheads - Jack Bogle fanbois.

They've set up a forum, a good wiki, and a recommended reading list.

http://www.bogleheads.org/

If you'd rather read books than lurk on a forum, try these:

ecx.images-amazon.com


The Bogleheads' Guide to Investing

ecx.images-amazon.com

The Bogleheads' Guide to Retirement Planning
 
2013-04-29 01:00:49 PM  
I love my 403(b) from my previous career at at a college.  Spent a good portion of my 20s enjoying 2 for 1 matching (school put in 2 dollars for every dollar I put in).  By the time I time pull from it, it will have been sitting there for decades.
 
2013-04-29 01:07:36 PM  

xynix: The net is I win by using a 401k. Maybe not everyone does and if that's the case then invest yourself on Etrade or whatever and only pay a 10 dollar fee for transactions. These days there is no excuse for being an uninformed investor.



I worked at place that switched to a company that offered only incredibly high fee mutual funds for the 401K.  It didn't offer an S&P500 Index fund but one that "attempted to approximated the return of the S&P500" with a fee of 4%.  It was easily the lease expensive fund.  Oh, how well was their "attempt" at "approximating the return of the S&P 500"?  They usually under performed by a percent or two.
 
2013-04-29 01:10:23 PM  
Wouldn't it be great if the Republicans could turn over our Social Security to Wall Street, so they could take 1/3 of that, too?
 
2013-04-29 01:10:24 PM  
I'm in the index fund camp too, but a lot of you guys don't seem to understand that many of us are limited by what our employer plan offers - and that is often the high fee managed funds.
 
2013-04-29 01:13:37 PM  
I don't have anything available in my 401(k) that is even close to 2% fees.  The highest fee fund that I could even choose is 0.98%.
 
2013-04-29 01:14:58 PM  

Mumbler: I'm in the index fund camp too, but a lot of you guys don't seem to understand that many of us are limited by what our employer plan offers - and that is often the high fee managed funds.


Check all your plan options thoroughly.  When I enrolled, they put me into a "targeted fund" by default.  Since I was busy getting healthcare and other benefits set up, I didn't pay much attention at first.  After things settled down a couple weeks later, I looked deeper into it and discovered that my default fund had a 1.8% expense ratio.  Luckily they did have Vanguard Institutional index funds available and I moved immediately.

In short, Make sure that there really are no other options and not just hidden ones.  The brokerage probably has a vested interest in not being incredibly helpful.
 
2013-04-29 01:15:30 PM  
401K's are government mandated corporate subsidies.  Of course the people who win are the Wall Street people.
 
2013-04-29 01:20:29 PM  
FWIW I just went through my 401k offerings.  Most are .2-.35% with two at .7% which are the max.
 
2013-04-29 01:23:46 PM  

pjbreeze: 401K's are government mandated corporate subsidies.  Of course the people who win are the Wall Street people.


What do you think pension funds are invested in?
 
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