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

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

#71

Post by 3825 »

tehwebguy wrote: post #43
3825 wrote: post #23

Earlier quoted context omitted.

For people on smartphones, here is what tehwebguy wrote: -- 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. --

Thanks, I shouldn't have used the double space!

You're more than welcome. One of the few good habits I picked up from using reddit on my phone.

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

#72

Post by tunesmith »

hkmurakami wrote: post #52
tunesmith wrote: post #44

Earlier quoted context omitted.

Well, I thought the point was that even an S&P-500 fund will suck some money away from you through fees. I wonder at which point it makes most sense to dump the fund and do just SPDR ETFs instead.

>I wonder at which point it makes most sense to dump the fund and do just SPDR ETFs instead. At any given point in time, an ETF will have the lowest fees compared to other options (mutual fund, professional money management fund, etc). There is no "breaking point" in which it makes sense to switch. If given your parameters, investment objectives and desired sector exposure tell you that an ETF and another option are…

Yeah... I've been following a sector-balanced mutual fund approach (10-12 funds from different sectors), rebalancing quarterly. Upon checking my funds (Fidelity funds, fidelity member), while no-load, they seem to each be around 1% in total in fees. There are enough ETFs that I bet I could probably swap them all out for ETFs that are in the same sectors and maybe make an extra percent a year.

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

#73

Post by dmourati »

On the eve of their IPO, Google held lectures advising the soon-to-be minted millionaires how to avoid the mutual fund management fees. They brought in experts who one after the other advised low fee index funds: http://www.tradersnarrative.com/the-best-investment-advice-y...

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

#74

Post by bradleyjg »

rayiner wrote: post #5

Wildly inaccurate. What the article is doing is comparing the 40 year return at 7% to a 40 year return at 7% minus 2% management fees, and noting that your total return in the second case is about half as much as your total return in the second case. 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. That's obvious. Whether you can get…

If you can't pick a winning stock portfolio, what makes you think you can pick a winning stock manager? (And vice-versa)

Actively management mutual funds are pure snake oil. Anyone with a whiff of the ability to generate alpha goes to the hedge funds, where you get the pleasure of paying 2 and 20 for it. Even there, there are no guarantees (though SAC with it's all insider trading, all the time, comes close.)

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

#75

Post by djb_hackernews »

cdjk wrote: post #36
joe_bleau wrote: post #24

Earlier quoted context omitted.

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 taxa…

Self directed options in 401ks are definitely available and if your 401k plan doesn't offer it you should be raising a stink with hr. I'm coming to the conclusion that if your plan doesn't offer it then your company either got screwed by the salesman or are incompetent.

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

#77

Post by jaibot »

hkmurakami wrote: post #67
mjn wrote: post #42

Earlier quoted context omitted.

I agree on the tone. A calmer (but still pretty negative) version of the rant has been given repeatedly for some decades now by John Bogle, who argued that surprisingly large portions of unsophisticated investors' funds were going to paying the management fees of financial products, when in many cases the managers' primary virtues lay in being good at marketing said products to said unsophisticated investors. This is…

>who argued that surprisingly large portions of unsophisticated investors' funds were going to paying the management fees of financial products IMHO, the situation cannot improve unless the "unsophisticated investors" are educated to have at least some semblance of investment savvy. You don't need any quant stuff at all. Even just some basic understanding of why a balanced portfolio makes sense, the power of compound…

Alternative: sane defaults.

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

#78

Post by zaroth »

ChuckMcM wrote: post #11
joe_bleau wrote: post #7

Earlier quoted context omitted.

How do you transfer from a 401k to an IRA? I work for a very small company, so my 401k investment choices are limited and expensive. I'd love to have a cheap index fund option.

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)…

There's no such thing as a 'qualifying event' for a rollover. See for yourself: 'http://www.irs.gov/taxtopics/tc413.html

Don't confuse the "plan documents" (aka the terms of service written by the bankers with their hands in your pocket) with the IRS regs. Some plans do allow in-service rollovers, and to be sure, you should make a request in writing.

When rolling over money, have the money sent directly to the other retirement account. If the check comes to you first, then the payer has to withhold 20%, which you won't get back until after you file your taxes and prove the funds were in fact rolled over. And, of course, you would need to 'front' that 20% in order to get the whole amount rolled!

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

#79

Post by rayiner »

hkmurakami wrote: post #68
msmith wrote: post #63

Earlier quoted context omitted.

I occasionally read about people's 401K options on the Bogleheads forum [1]. You're right, many of them are shockingly bad. Startups and small companies are especially likely to have poor options. The solution is for employees to become better educated and demand better plans. This Frontline program does a pretty good job of getting the message out. [1] http://www.bogleheads.org/forum/viewforum.php?f=1

I'm starting to see a striking similarity between the financial products industry and the social gaming industry. Both sectors (at least traditionally) have a large fraction of their business derived from unsophisticated, unaware customers, whether it be 401k users or social gaming "whales". "Business" in general seems to be bimodal in making money from (a) providing value to sophisticated players, or (b) gouging the…

> "Business" in general seems to be bimodal in making money from (a) providing value to sophisticated players, or (b) gouging the unsophisticated players (long tailing it) with a shitty product.

This is much of the consumer products/services industry these days. See, e.g., Applebee's.

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

#80

Post by idunno246 »

sopooneo wrote: post #50
jcdavis wrote: post #47

Earlier quoted context omitted.

The problem is with 401(k)s is that most plans don't have that many options, and its common for all of them to be expensive (compared to what you can get elsewhere). And not putting your money in 401(k)s is even worse due to the extra taxes.

I am very ignorant here. Do you know if putting your 401K money into passively managed index funds typically results in higher fees than if you invested in similar accounts outside your 401K? That is, can you escape having extra fees inside your 401K?

Yes. Most 401k plans pass on additional management fees on top of the fund's fees. In my current plan, a passive sp500 index would cost 1.6%, 0.6% for the funds expense ratio, and 1% to the plan administrator. Outside the 401k you'd pay 0.6% for the same fund. The vanguard plan that matches a similar index costs 0.17%(admiral is 0.05% with 10k balance)

Unless you work at a large company. At one, I had access to the vanguard institutional funds, which were even cheaper than the admiral

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