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Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

wallstreetonparade.com

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Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#31

Post by sootzoo »

dragontamer wrote: post #20
conjecTech wrote: post #6

This is fundamentally wrong. The statement assumes the whole of the management fees is being reinvested at 7%, when in reality it is being used by those who have jobs in the financial sector to pay their bills. That is quite literally like taking the price you pay for anything and multiplying it by (1.07)*50 (which is ~30) and claiming that is what they are actually charging you, since you could have otherwise invest…

So... why not buy a Vanguard index fund, which is currently charging 0.07% for a management fee? The difference between a 2% management fee and a 0.05% management fee from Vanguard's Total Stock Market Index... or 0.09% fee from SPY ETFs (+$7/trade from your typical broker). Run the math, if you are paying 2% fees, you are getting straight up robbed. If your employer doesn't offer low-fee index funds, it would be wor…

> Run the math, if you are paying 2% fees, you are getting straight up robbed. If your employer doesn't offer low-fee index funds, it would be worth your while to make sure that they get some onto your 401k portfolio.

Worth my while, true, but maybe not worth theirs. More flexibility comes at a higher price from the 401k vendor, a crucial part of the scam here. Employers can offer "a 401k" as a benefit but might not view this as a tax-sheltering vehicle through profit sharing or discretionary matching--they could simply see it as yet another benefit expense. As with all employers offering benefits, some are more generous than others. Most employees don't know/care to pressure their employer to offer better investment options, or would prefer to have other benefits improved instead.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#32

Post by codemac »

tehwebguy wrote: post #16

Smith: Take an account with a $100,000 balance and reduce it by 2 percent a year. At the end of 50 years, that 2 percent annual charge would subtract $63,000 from your account, a loss of 63 percent, leaving you with just a little over $36,000. Is this math right? It doesn't seem like this is how the calculation would be done.

future = principal * (1 + interest) ^ periods

So some basic math to show how much a 2% yearly fee costs you:

  In[2]:= 100000 * (1 + 0.07)^50
  
  Out[2]= 2.9457*10^6
  
  In[3]:= 100000 * (1 + 0.05) ^50
  
  Out[3]= 1.14674*10^6
  
  In[4]:= Out[2] - Out[3]
  
  Out[4]= 1.79896*10^6
  
  In[5]:= Out[4] / Out[2]
  
  Out[5]= 0.610707
So you lose 61.07% of your 401k balance to these yearly fees reducing your effective interest rate.

The 100k example isn't accurate, it's just trying to give people a sense of how much they'd be losing..

However - this article doesn't really do the full benefit calculation of company matching, effective interest rates of other types of accounts, etc.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#33

Post by walshemj »

myth_drannon wrote: post #3

"The revelation of the two-thirds wealth transfer machinery was delivered by none other than John Bogle, the legendary founder of The Vanguard Group, a low-load mutual fund firm, ..." Of course John Bogle will try to sell his low fee index funds. With new products like ETF's and low index mutual funds very few people pay 2% fee. 0.1% to 1% is more realistic.

Yep in the UK my personal pension is sub 1% charge

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#34

Post by jmspring »

2% seems high, but you need to be careful. During bubble-1, the startup I was working ended up soliciting feedback on the option proposed by our payroll company (I believe). Most of the "management fees" on the funds were in the 1-2.5% range. I went to the morning star website and showed what poor ratings this batch of funds got as well as pointed to some fidelity/vanguard funds that were in the In the end, we ended up with better options. You need to pay attention to these things.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#35

Post by joe_bleau »

rayiner wrote: post #9
ChuckMcM wrote: post #8

Earlier quoted context omitted.

"Of course all that tells you is that it's stupid to pay 2% management fees if you can get the same return with lower management fees." It is a bit more nuanced than that, basically it's saying you don't have any control over what sort of fee structure your 401k has in place, and goes on to suggest that banks abuse that lack of control. So yes, if you can , you need to reduce your management fees.

Who doesn't have the option to invest in low fee funds? That's really your employers fault.

Any recommendations for who my employer should be using that would allow us to invest in low fee funds? We're really small, so most people have told me we just don't have the leverage to negotiate a better plan.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#36

Post by cdjk »

joe_bleau wrote: post #24
ChuckMcM wrote: post #11

Earlier quoted context omitted.

Sadly, you can only roll it over during a 'qualifying event' which is either you leave the company, the company drops the 401k, or reach the minimum age for disbursement. The most common case is people leaving the company. I've known too many people who change jobs and just leave the 401k they had in their previous job with the company that is still managing the 401k for the old company. There can be (and often are)…

That's what I thought. My current strategy is to keep an eye on the total size of our account, hoping it gets big enough to add some better options, or big enough to be worth moving to a cheaper provider. I wonder what it would take to add a brokerage window (self-directed) option?

All you can really do is pressure the company into picking a better 401k provider (Vanguard is a good bet).

A self-directed option in a 401k isn't really possible as far as I'm aware, since you're limited to mutual funds. They don't want people "gambling" with their 401k money by betting on individual stocks.

Still, given the tax advantages, you're likely to come out ahead in the long run in a 401k compared to a taxable brokerage account. Just pick the funds with the lowest fees.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#37

Post by DanielBMarkham »

Little too hysterical for me.

Yes, you pay a fee to have your funds managed. No, that does not mean "you work for Wall Street", whatever the heck that's supposed to mean.

This is like dropping into the middle of a demented rant. There's no disagreement on the facts here, but there's a lot of smoke and heat, and not much fire.

If you don't like paying to have your funds managed, you have plenty of other options. Use one. I'm not sure this constitutes the end of civilization as we know it.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#38

Post by orofino »

joe_bleau wrote: post #24
ChuckMcM wrote: post #11

Earlier quoted context omitted.

Sadly, you can only roll it over during a 'qualifying event' which is either you leave the company, the company drops the 401k, or reach the minimum age for disbursement. The most common case is people leaving the company. I've known too many people who change jobs and just leave the 401k they had in their previous job with the company that is still managing the 401k for the old company. There can be (and often are)…

That's what I thought. My current strategy is to keep an eye on the total size of our account, hoping it gets big enough to add some better options, or big enough to be worth moving to a cheaper provider. I wonder what it would take to add a brokerage window (self-directed) option?

Some 401k programs do allow for "in-service" rollovers which would allow you to move the funds to an IRA before you leave your job. Those that allow this aren't all that common, but it is worth checking into.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#40

Post by cdjk »

joe_bleau wrote: post #35
rayiner wrote: post #9

Earlier quoted context omitted.

Who doesn't have the option to invest in low fee funds? That's really your employers fault.

Any recommendations for who my employer should be using that would allow us to invest in low fee funds? We're really small, so most people have told me we just don't have the leverage to negotiate a better plan.

The company I worked use to use ADP's 401k, which wasn't very good. We've switched to The Hartford, which is decent, but I've only heard good things about Vanguard.
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