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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)

#41

Post by timsally »

This is why checking the fees of the products you buy when you invest is so important. I'm lucky enough to have index fund options at 0.04% and bond fund options at 0.07% in my 401k. That doesn't matter if you don't use them though! I work with some pretty smart people that used to put their 401ks in target funds with fees in excess of 2.0% until I sat them down and worked out the math with them.

If you want to quickly eyeball how your 401k stacks up, Brightscope (http://www.brightscope.com/) is pretty useful.

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

#42

Post by mjn »

DanielBMarkham wrote: post #37

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 o…

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 one of the more recent iterations of his spiel: http://www.amazon.com/gp/product/047064396X/ref=as_li_ss_tl?...

This article does mention Bogle, but really just reading something by Bogle directly would be better than this piece.

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

#43

Post by tehwebguy »

3825 wrote: post #23
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.

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!

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

#44

Post by tunesmith »

ChuckMcM wrote: post #4

Which is why as soon as you get a chance you immediately transfer your 401k into a self managed IRA account, which if you did nothing but put all the money into an S&P 500 index fund you would do better than having these guys pilfer your account over time. Not a big issue for you young folks but it does add up. What is worse is that there is a lot of double dipping that goes on, for example BigBank1 manages the 401k…

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.

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

#45

Post by [deleted] »

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.

[deleted]

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

#46

Post by thebear »

One aspect that people stubbornly ignore in discussions of this kind is that nobody, in particular no 401k investor, has all his or her money at the beginning of the 50 year or so investment period. People start with a small amount, then add to that over the years. So each year, the principal grows via compounding and via addition of a certain amount. I am not going to bloat this thread with more math; it's not hard to do it right, and the fact remains that by and large, Wall Street fees are outrageous. I just want to remind everybody that all performance considerations must take into account that a real-life investor's account is subject to deposits (and eventually, withdrawals as well). Ok, self-praise is no recommendation, but I think I have all this pretty much figured out: check out greaterthanzero.com .

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

#47

Post by jcdavis »

DanielBMarkham wrote: post #37

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 o…

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.

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

#48

Post by jcdavis »

tunesmith wrote: post #44
ChuckMcM wrote: post #4

Which is why as soon as you get a chance you immediately transfer your 401k into a self managed IRA account, which if you did nothing but put all the money into an S&P 500 index fund you would do better than having these guys pilfer your account over time. Not a big issue for you young folks but it does add up. What is worse is that there is a lot of double dipping that goes on, for example BigBank1 manages the 401k…

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.

ETFs charge fees too - Vanguard's Admiral Total Stock Market Fund charges a 0.05% fee, which is going to be smaller or comparable than almost any ETF (their comparable ETF also has a 0.05% fee), and certainly far lower than the index funds available in most 401(k) plans

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

#49

Post by wheaties »

DanielBMarkham wrote: post #37

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 o…

Exactly. ETFs, Index Funds, etc.

Besides, how did they get 2/3 anyways? If I make 7% and 2% goes to someone else, I'm still left with 5%. 5% > 2%. So how does that 2% translate into 66.7%?

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

#50

Post by sopooneo »

jcdavis wrote: post #47
DanielBMarkham wrote: post #37

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 o…

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?
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