Posts filed under “Apprenticed Investor”
We all know that the U.S. has a looming retirement crisis. The baby boomers do not save enough for their golden years. Social Security is funded at levels that are less than ideal. Private savings in the form of Individual Retirement Accounts and tax-qualified plans like 401(k)’s also appear to be insufficient.
One of the dirty little secrets about 401(k) accounts is their under-performance — returns average 3 percent to 4 percent versus 8 percent to 10 percent for comparable 70/30 balanced portfolios. One of many factors that drive these weak returns are the drag from excess fees.
Over the years, I’ve reviewed plans that included a mess of fees for anyone who so much as looked at the accounts: Custodians, reporting firms, Internal Revenue Service filers, consultants, managers and advisers. All of these take a few basis points, rather than a flat fee per investor. The compounding of all these fees degrades returns over time.
While retirement accounts have many issues — behavioral errors and over-active management leap to mind — the British have made high fees front and center. The U.K. is debating putting a 0.75 percent cap on total fees, including an outright ban on any plans that charge more than that.
Perhaps more surprising, this proposal comes from the right-wing Conservative Party. The fear is that any retirement shortfall ultimately gets picked up by the government. High pension fees = future tax increases, according to the Tories.
A retirement plan fee of 0.75 percent of assets is considerably less than the average in the U.S. Typical 401(k) plans run between 1 percent and 2 percent, according to a recent Limra survey. Just last year, new fee disclosure rules from the Department of Labor went into effect that are letting 401(k) participants more easily figure out exactly what they are paying in fees.
Note that it is the Labor Department that governs these plans, and not the Securities and Exchange Commission. Its charge is to the employee, as workplace tax-deferred accounts are a form of compensation. In the U.S., recent 401(k) rule changes have imposed a fiduciary standard on employers. If you have not reviewed the fees your 401(k) plan charges your employees, you may not be living up to those standards.
The U.S. should watch the Brits’ experiment, and learn from it.
What are you paying for your 401(k) fees?
Well now, let’s have a look around here. Hmmm, nicely typeset. Headline, URL, date are in the usual places; sidebar for other articles off to the right. Hey, this doesn’t look very different than it did at my blog, the Big Picture. What’s different? Oh, you out there. I see, you are a somewhat different…Read More
Category: Apprenticed Investor
> My Sunday Washington Post Business Section column is out. This morning, we look at “noise” levels, and what you can do to reduce them. Here’s an excerpt from the column, that asks: Do these inputs add to signal or to noise? • News: Most of it is actually old. By the time information…Read More
Category: Apprenticed Investor
How Shiller helped Fama win the Nobel Barry Ritholtz, Washington Post October 20 2013 At the University of Chicago, there are two professors of economics named Eugene Fama. The first — let’s call him Fama the Younger — started in the 1960s. He developed a profound insight about the markets. This Fama observed that…Read More
My Sunday Washington Post Business Section column is out. This morning, I look at how Eugene Fama’s early insights were nearly eclipsed by his latter bad theories. Not to give away the ending, but if it weren’t for Robert Shiller’s criticism, Fama may very well not have won. Here’s an excerpt from the…Read More
I am working on this week’s WaPo column, based loosely on last week’s open thread on the value of the Financial Media. I have a 23 bullet points I am trying to cut down to a dozen or less. Here are two: Too Much Noise, Too Little Signal: The biggest problem most investors encounter is…Read More
On Investing: The Obamacare portfolio By Barry Ritholtz, October 6, 10:11 AM Investors are best off when they leave their party affiliation and partisan views behind. I’ve said it before: “Washington, I’m here to tell you, politics and investing don’t mix. Your politics are killing you in the markets.” Keeping your emotions…Read More
> My Sunday Washington Post Business Section column is out. This morning, we look objectively at Obamacare — not the politics of it, but the investing aspect. Its called: On Investing: The Obamacare portfolio. My conclusion? If you were an objective observer of the legislation when it passed, and then again when the Supreme…Read More