Frontline--The Retirement Gamble

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Re: Frontline--The Retirement Gamble

Postby sschullo » Sun Apr 28, 2013 6:39 am

lawman3966 wrote:
Polar_Ice wrote:Allan Roth's review

I do need to point out, Frontline, that you neglected to include a very critical segment in your documentary -- the vital role that active managers play. Seriously, who do you think keeps markets efficient and allows us indexers to profit? Without the expensive active managers, indexing wouldn't work.

I wish he would of explained this more. Maybe someone else can?


I will try. Allan appears to be saying that when the relative valuation of Exxon and IBM (for example) changes due to earnings or other factors, it is active traders who end up re-pricing the stock values of the companies to reflect their updated financial conditions. Indexers in theory can't do this because indexing inherently forces investors to buy both stocks or sell both stocks at the same time and to the same extent (that is, accordingly their respective weightings in the index).

Active traders may indeed perform the above needed function. But, active stock trading seems to me be different from active mutual fund account management. I think it oversells active mutual fund account management to suggest that such account managers perform the re-pricing function to keep the markets efficient. The re-pricing of components of the index occurs pretty much continuosly, given the microsecond trading that we now have. I just don't believe that most actively managed mutual funds trade with the level of frequency and precision needed for the pricing adjustment function. The active managers I've seen interviewed in the media seem to use some sort of macroeconomic logic to explain why their stock weightings depart from the weightings in the index.

I recall Bogle saying in one of his books that, in the aggregate, the totality of active fund managers are in fact indexers, just that they are high-fee indexers. This is because most stock shares are owned by active managers, and performance of the sum of all underlying assets of the various active managers is necessarily the same as that of the index as a whole. (However, the net performance is less than that of the index due to fees, taxes, and trading costs).

In sum, active stock trading does appear to be needed to adjust the pricing of stocks within the index. However, this observation, IMHO, bears little if any relevance to the fees charged by active mutual fund managers. Allan no doubt wishes to defend his industry. But, this particular argument doesn't work for me. If Allan wants to pay 2% of AUM annually to invest in the S&P 500, he's free to do so. But I will pass on that offer.


thanks lawman for your explanation. While I have heard this before that trading is what makes indexing work, I was surprised with Allan's defensivness. The market has 2.5 trillion in both VG and TIAA CREF. With this in mind, I wonder if Allan's prediction is correct, that indexes would already been affected. Thats a significant part of the market that is not traded daily and frequently. I think the key concept is frequent trading. Also, Allan said that in 20 years, trading will cease! Really, most retirees are trading now with distributions in retirement. Millions of workers are also trading while contributing. Millions of indexing investors may only trade to buy into the market and than trade to make distributions in retirement. Then there is rebalancing. Even with indexing, trading does not stop. The key is that we trade for a purpose other than trying to find the next gem that will make us rich. In my thinking, its not that the repricing will stop its that it will slow down as more and more people get into the indexing strategy. It can never stop for the above reasons.

In the end, as Mr. Bogle has said over and over, GDP, dividends and Corporate profits will go up over time and that is the only aspect of the stock market that we trust. If indexing is the strategy in 20 years, would contributions and distributions with rebalancing by millions of indexers be enough to reprice the stocks to keep markets efficient?
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Re: Frontline--The Retirement Gamble

Postby Spades » Sun Apr 28, 2013 7:47 am

sschullo wrote:In the end, as Mr. Bogle has said over and over, GDP, dividends and Corporate profits will go up over time and that is the only aspect of the stock market that we trust. If indexing is the strategy in 20 years, would contributions and distributions with rebalancing by millions of indexers be enough to reprice the stocks to keep markets efficient?


That's a very big question. I have no idea. :D

I convinced my wife to watch this with me last night. I wish there had been a little more on active management, because after watching it she had come to the conclusion that active management will always lose. After 10 more minutes of us discussing I got her to conclude that for the average investor active management is bad, but that the occasional Warren Buffet emerges and neither of use are Warren Buffet.

I wish they had pulled out some Fama and French or asked the "retirement expert" why she hadn't seen any studies on index investing. Watching the JPMorgan guy was funny, though I think he got ambushed a little and was unprepared for the topics.

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Re: Frontline--The Retirement Gamble

Postby Diogenes » Sun Apr 28, 2013 9:58 am

It was an informative program. However, it was a little disappointing that it appeared to say that most people just cannot understand this by themselves, which I believe is wrong given motivation. The solution they seemed to espouse apparently was government regulation. I think there are several problems they failed to highlight that center on personal responsibility:

1. I don't have time to review my plan. Make time, it's important.
2. I want a sure thing for my retirement, someone owes that to me. No sure thing, like everything in life, you need to work at it. Nobody, in your generation or future, owes you a retirement.
3. I hope Social Security keeps me afloat. SS was never intended to be a sole source of retirement income, don't expect it to be in the future. Do not expect the government, or other people, to provide you an income if you chose not to save. I noticed most of the people profiled with problems lived in nice houses with big screen TV's, one was typing away on a $1300 MacBook - umm...

I realize it was PBS - hence push toward more government, but overall it was a good wake-up call. However, I think they could have been fairer to people as to the BH solution. I posted a nice comment on the PBS/Frontline site with these suggestions, but it is still being 'moderated' after two days...

_D_

(apologies - duplicate post on the other thread)
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Re: Frontline--The Retirement Gamble

Postby cheese_breath » Sun Apr 28, 2013 10:12 am

Diogenes wrote:It was an informative program. However, it was a little disappointing that it appeared to say that most people just cannot understand this by themselves

I was listening to Rick Edelman while getting ready for church this morning, and naturally he jumped on this as an opportunity for touting advisers. He also mentioned the JP Morgan and Prudential reps, remarking on their total denial of reality with respect to fees.
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Re: Frontline--The Retirement Gamble

Postby Strevlac » Sun Apr 28, 2013 10:57 am

texasdiver wrote:Seems like the solution is incredibly simple.

Just change the law so that everyone is entitled to shelter say $25,000 of income in whatever combination of vehicles they chose (401(k), IRA, ROTH etc.)

You don't like your 401(k), fine. Just take your $17,500 and put it in an IRA instead and dump another $5500 in your Roth. Or whatever. You love your 401(k) or your employer makes a generous match? Fine, keep it. Just make the math work out so that individuals who have crummy 401(k) plans or no 401(k) plan at all can chose to put equivalent amounts in their own IRA or Roth. Since my wife has no match in her plan we would instantly chose to drop the 401(k) and put an equivalent amount in a Vanguard IRA. It is ridiculous that we do not have that choice. And for the IRS it would be a wash either way if the total contribution limits didn't change. Then 401(k) advisors would actually have to COMPETE to keep people in their plans rather than owning them as a captive audience.


This is what I have wondered all along. Here we have the single most powerful retirement savings tool for an individual and you are held captive depending on what company you work for and the plan they offer? Just raise the Roth/traditional IRA/401(k) limit to $23K ($17.5K + $5.5K), and BOOM, done.

Maybe I haven't been paying attention, but yours is the first post I've seen to even mention it.
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Re: Frontline--The Retirement Gamble

Postby texasdiver » Sun Apr 28, 2013 11:22 am

sschullo wrote:
lawman3966 wrote:
Polar_Ice wrote:Allan Roth's review

I do need to point out, Frontline, that you neglected to include a very critical segment in your documentary -- the vital role that active managers play. Seriously, who do you think keeps markets efficient and allows us indexers to profit? Without the expensive active managers, indexing wouldn't work.

I wish he would of explained this more. Maybe someone else can?


I will try. Allan appears to be saying that when the relative valuation of Exxon and IBM (for example) changes due to earnings or other factors, it is active traders who end up re-pricing the stock values of the companies to reflect their updated financial conditions. Indexers in theory can't do this because indexing inherently forces investors to buy both stocks or sell both stocks at the same time and to the same extent (that is, accordingly their respective weightings in the index).

Active traders may indeed perform the above needed function. But, active stock trading seems to me be different from active mutual fund account management. I think it oversells active mutual fund account management to suggest that such account managers perform the re-pricing function to keep the markets efficient. The re-pricing of components of the index occurs pretty much continuosly, given the microsecond trading that we now have. I just don't believe that most actively managed mutual funds trade with the level of frequency and precision needed for the pricing adjustment function. The active managers I've seen interviewed in the media seem to use some sort of macroeconomic logic to explain why their stock weightings depart from the weightings in the index.

I recall Bogle saying in one of his books that, in the aggregate, the totality of active fund managers are in fact indexers, just that they are high-fee indexers. This is because most stock shares are owned by active managers, and performance of the sum of all underlying assets of the various active managers is necessarily the same as that of the index as a whole. (However, the net performance is less than that of the index due to fees, taxes, and trading costs).

In sum, active stock trading does appear to be needed to adjust the pricing of stocks within the index. However, this observation, IMHO, bears little if any relevance to the fees charged by active mutual fund managers. Allan no doubt wishes to defend his industry. But, this particular argument doesn't work for me. If Allan wants to pay 2% of AUM annually to invest in the S&P 500, he's free to do so. But I will pass on that offer.


thanks lawman for your explanation. While I have heard this before that trading is what makes indexing work, I was surprised with Allan's defensivness. The market has 2.5 trillion in both VG and TIAA CREF. With this in mind, I wonder if Allan's prediction is correct, that indexes would already been affected. Thats a significant part of the market that is not traded daily and frequently. I think the key concept is frequent trading. Also, Allan said that in 20 years, trading will cease! Really, most retirees are trading now with distributions in retirement. Millions of workers are also trading while contributing. Millions of indexing investors may only trade to buy into the market and than trade to make distributions in retirement. Then there is rebalancing. Even with indexing, trading does not stop. The key is that we trade for a purpose other than trying to find the next gem that will make us rich. In my thinking, its not that the repricing will stop its that it will slow down as more and more people get into the indexing strategy. It can never stop for the above reasons.

In the end, as Mr. Bogle has said over and over, GDP, dividends and Corporate profits will go up over time and that is the only aspect of the stock market that we trust. If indexing is the strategy in 20 years, would contributions and distributions with rebalancing by millions of indexers be enough to reprice the stocks to keep markets efficient?


Frankly I think it is much simpler than that. People, institutions, funds, etc. buy stocks to make a profit not to provide price signals for the indexes. A world in which only index funds existed would be inconceivable in a free market exactly because the indexes would be unable to reflect day to day changes in the profitability and future profitability of individual companies. This would open up enormous profit opportunities for traders of individual stocks to benefit from changes to individual companies that that the indexes are not picking up. And we would be right back where we are now. There will always be a balance between indexers and active managers. Whether we are at that perfect balance right now I don't know.
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Re: Frontline--The Retirement Gamble

Postby bayview » Sun Apr 28, 2013 11:26 am

My guess is that the reason for the current set-up is that the financial industry does better when investors are forced to put the majority of their tax-advantaged accounts into 401(k)'s, where they can influence which funds are offered and how profitable they are (to industry, not to investors.) The question of course is why they get to determine this, when it's pretty obviously detrimental to investors (= voters.)
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Re: Frontline--The Retirement Gamble

Postby Spades » Sun Apr 28, 2013 11:28 am

Diogenes wrote:It was an informative program. However, it was a little disappointing that it appeared to say that most people just cannot understand this by themselves, which I believe is wrong given motivation. The solution they seemed to espouse apparently was government regulation. I think there are several problems they failed to highlight that center on personal responsibility:

1. I don't have time to review my plan. Make time, it's important.
2. I want a sure thing for my retirement, someone owes that to me. No sure thing, like everything in life, you need to work at it. Nobody, in your generation or future, owes you a retirement.
3. I hope Social Security keeps me afloat. SS was never intended to be a sole source of retirement income, don't expect it to be in the future. Do not expect the government, or other people, to provide you an income if you chose not to save. I noticed most of the people profiled with problems lived in nice houses with big screen TV's, one was typing away on a $1300 MacBook - umm...

I realize it was PBS - hence push toward more government, but overall it was a good wake-up call. However, I think they could have been fairer to people as to the BH solution. I posted a nice comment on the PBS/Frontline site with these suggestions, but it is still being 'moderated' after two days...

_D_

(apologies - duplicate post on the other thread)


I've helped a number of my friends who fall into the category of persons who don't want to run their own investments. It's frightening to them. I think this is where fiduciaries come in and can provide a great service to people. I wish the PBS program expanded more on fiduciaries or other options than SS or government.

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Re: Frontline--The Retirement Gamble

Postby hoppy08520 » Sun Apr 28, 2013 11:33 am

Strevlac wrote:
texasdiver wrote:Seems like the solution is incredibly simple.

Just change the law so that everyone is entitled to shelter say $25,000 of income in whatever combination of vehicles they chose (401(k), IRA, ROTH etc.)

You don't like your 401(k), fine. Just take your $17,500 and put it in an IRA instead and dump another $5500 in your Roth. Or whatever. You love your 401(k) or your employer makes a generous match? Fine, keep it. Just make the math work out so that individuals who have crummy 401(k) plans or no 401(k) plan at all can chose to put equivalent amounts in their own IRA or Roth. Since my wife has no match in her plan we would instantly chose to drop the 401(k) and put an equivalent amount in a Vanguard IRA. It is ridiculous that we do not have that choice. And for the IRS it would be a wash either way if the total contribution limits didn't change. Then 401(k) advisors would actually have to COMPETE to keep people in their plans rather than owning them as a captive audience.


This is what I have wondered all along. Here we have the single most powerful retirement savings tool for an individual and you are held captive depending on what company you work for and the plan they offer? Just raise the Roth/traditional IRA/401(k) limit to $23K ($17.5K + $5.5K), and BOOM, done.

Maybe I haven't been paying attention, but yours is the first post I've seen to even mention it.

Strevlac, if I may brag and quote myself for a moment, I made the same suggestion in this post ten months ago:
hoppy08520 wrote:I think the regulations and/or tax code should change so people should be allowed to take what they would have put into 401k contributions (as well as a provision to allow employers to contribute a match) and be able to put that into independent retail IRA's. Then all these parasites would be out of business and they'd need to find a real job.

I'm not going to claim credit for this idea. I think some countries (Australia?) do something similar and it's an idea touted frequently. Boglehead author Dan Solin proposed a similar idea, to open up the Federal Thrift Savings Plan (TSP) to 401(k) participants (A Proposal to Fix the Broken 401(k) Plan System.

I agree with you that we need to decouple the 401(k) from employment. We The People, through our tax code, proclaimed that we want to encourage long-term savings, so we enshrine that ideal by favoring long-term savings in our tax code. So far, so good. But somehow, that provision has been co-opted by the financial services industry like a boa constrictor on a defenseless animal. We need to take a knife to the snake and let us save our money without entangling it with their suffocating fees and lack of choices. We could preserve the employer matching component, as employer matching is just another form of compensation, and continue to give employer matching a slight tax advantage for employers to encourage this practice.

Mortgages also are subsidized by We The People because We believe in home ownership so We give tax advantages to ourselves for financing a home and owning a home. Now imagine that this was administered by your employer. Your employer's plan would tell you which kinds of loans you could have, and what your interest rate is. If you work for a small company, maybe you can only get a 30-year fixed at 1% over the going rate. But if you work for MegaCorp, you can get better terms. If we set it up this way, people would be outraged, because it makes no sense. Why should your housing be tied to your employment!?

But for some bizarre reason, we have tied retirement savings to your employment, and unless you want to forego the tax advantages and shoot yourself in the foot, you are stuck with what your employer offers you. This is horrible.

Predictably, the self-serving retirement industry touts all the wonderful things they do for our 401(k) plans. Who cares? Very few people have all their eggs in their 401(k) basket anyway, and as people go from job to job, they typically roll their 401(k) balance over to an IRA. So please spare me the "we're looking out for you" garbage.
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Re: Frontline--The Retirement Gamble

Postby steeplechase » Sun Apr 28, 2013 11:34 am

“Hedge Fund Titans’ Pay Stretching to 10 Figures”

NY Times 4/15/13

“Certainly, plenty of hedge fund titans took home billion-dollar paydays last year despite the fact they lagged the big gains in stocks.”

“For the fourth consecutive year, most hedge funds failed to beat the market.”

The top four salaries listed (in Billions) $2.2, $1.7, $1.4, $1.1.

http://dealbook.nytimes.com/2013/04/15/ ... 0-figures/

From Huffington: “Many of us suck at our jobs. But only a few people can get exorbitantly wealthy doing so. These elites are called hedge fund managers.”

http://www.huffingtonpost.com/2013/04/1 ... 85091.html
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Re: Frontline--The Retirement Gamble

Postby stan1 » Sun Apr 28, 2013 11:41 am

bayview wrote:My guess is that the reason for the current set-up is that the financial industry does better when investors are forced to put the majority of their tax-advantaged accounts into 401(k)'s, where they can influence which funds are offered and how profitable they are (to industry, not to investors.) The question of course is why they get to determine this, when it's pretty obviously detrimental to investors (= voters.)


I think the show explained this. There was no "grand master plan" to have 401Ks replace defined benefit pensions. The 401K started as an obscure loophole, but companies (with heavy marketing from the financial services industry) soon saw 401Ks as a way to get uncertain long term pension commitments off their books and transfer market performance risk to the employee.

I think the easiest solution would be to require that every 401K plan offer an in-service rollover provision that would let any employee rollover a 401K to an IRA at any time during their employment tenure -- not just when the employee leaves the employer. Limit it to once per year to keep management/administrative costs down. This would put pressure on the financial services industry to offer products in 401Ks that are competitive. Of course the financial services industry doesn't want this type of competition.
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Re: Frontline--The Retirement Gamble

Postby lawman3966 » Sun Apr 28, 2013 11:59 am

texasdiver wrote:Seems like the solution is incredibly simple.
Just change the law so that everyone is entitled to shelter say $25,000 of income in whatever combination of vehicles they chose (401(k), IRA, ROTH etc.)
. . .
Then 401(k) advisors would actually have to COMPETE to keep people in their plans rather than owning them as a captive audience.


Your stated result of "competition" for 401K plans is exactly why the 401K industry will oppose any increase in the deductibility for IRAs. The 401K industry worked hard to get the system where it is now, and will work just as hard to keep it that way. You can expect to hear arguments to the effect that the common people need guidance to invest properly, and thus should not be left adrift in unmanaged IRA accounts.

I mentioned this earlier in the thread. What you propose in your post was proposed by a retirement committee that included Paul Volcker, around 2009 or so. His statement was a minor blip on the radar screen and quickly disappeared. As a result, the only real option is to reduce your fees by getting a better 401K plan.
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Re: Frontline--The Retirement Gamble

Postby bayview » Sun Apr 28, 2013 12:06 pm

Isn't another option to have a lot of taxpayer lobbying of our elected representatives to address this, including shining a big bright light on the current set-up?

--I hope this doesn't count as a political post, because I don't mean it to be. To me, this is actionable, in that this is an action that investors can take to try to improve their investment options and thus their eventual outcomes.
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Re: Frontline--The Retirement Gamble

Postby lawman3966 » Sun Apr 28, 2013 12:09 pm

Spades wrote:In the end, as Mr. Bogle has said over and over, GDP, dividends and Corporate profits will go up over time and that is the only aspect of the stock market that we trust. If indexing is the strategy in 20 years, would contributions and distributions with rebalancing by millions of indexers be enough to reprice the stocks to keep markets efficient?

[/quote]

Perhaps someone will correct me, but I don't see that this is a problem at all.

Firstly, posters seem to have equated high-fee mutual funds with active stock trading. They are not necessarily the same thing. Some high-fee mutual funds selected stock weightings that depart significantly from the index (witness all the tech-heavy funds in the 90s' and 2000s with fancy names), but don't necessarily trade that much. These guys have just picked a different index in some ways, but don't necessarily change their portfolios all that much in a given year.

Secondly, I don't there have to be as many active fund investors as passive fund investors. One highly skilled active trader with enough resources who detects that the price of a stock is too high or too low in light of its profitability, dividend level, or other metric can trade so as to move that stock to its efficient level, and thereby correct any mispricing arising from index-driven buying and selling. There are many such "nano-second traders" on Wall street now, who will trade on the indication of even the slightest misprising of any asset. Moroever, mere observation will show that different stocks in the index behave differently on any given day (too many examples to mention).
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Re: Frontline--The Retirement Gamble

Postby arcticpineapplecorp. » Sun Apr 28, 2013 12:14 pm

sschullo wrote:My companion and I and a LAUSD teacher were interviewed last fall for this broadcast. While the focus is on 401k plans, they might report some of the 403b costs too because we used 403bs in our working careers.


I thought that was the two of you! Just watched the show! You both did a great job. Love the sweatshirt at the end of the program "stop selling tax sheltered annuities to teachers"!
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Jack says pay 1% to own the US stock market?

Postby arcticpineapplecorp. » Sun Apr 28, 2013 12:28 pm

I love Jack, but I had to do a double take around 34:40-34:50 when he said:

“Get Wall street out of the equation, get trading fees out of the equation, get management out of the equation. You own American business and you hold it forever. That’s what indexing is. Own a fund that owns the entire US stock market, does no trading and has a cost of 1% a year to own and that is the only way to do it.”

I couldn't find this in the transcript at :http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/john-bogle-the-train-wreck-awaiting-american-retirement/ but I transcribed it off the video from PBS.

I was a bit shocked (unless I heard him wrong, but I listed to that part of the video several times). You can own the entire US market for .05%, not 1%.

Does anyone know why he used that percentage?

Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)
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Re: Jack says pay 1% to own the US stock market?

Postby umfundi » Sun Apr 28, 2013 1:05 pm

arcticpineapplecorp. wrote:
Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)

Here is the table from that Vanguard blog:
Code: Select all
Cumulative impact of fees on ending wealth at various time horizons
                                        Annual Fee Rate
Time Horizon      0.10%      0.25%      0.50%      1.00%      2.00%      3.00%
    3 years      –0.3%      –0.7%      –1.5%      –2.9%      –5.8%      –8.5%
    5 years      –0.5%      –1.2%      –2.5%      –4.9%      –9.4%     –13.7%
   10 years      –1.0%      –2.5%      –4.9%      –9.5%     –18.0%     –25.6%
   20 years      –2.0%      –4.9%      –9.5%     –18.0%     –32.7%     –44.6%
   30 years      –3.0%      –7.2%     –13.9%     –25.8%     –44.8%     –58.8%
   40 years      –3.9%      –9.5%     –18.1%     –32.8%     –54.7%     –69.3%

I must admit this is a revelation to me. I had never thought of the impact of fees and expenses in this way.

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Re: Frontline--The Retirement Gamble

Postby Diogenes » Sun Apr 28, 2013 1:10 pm

Spades wrote:I've helped a number of my friends who fall into the category of persons who don't want to run their own investments. It's frightening to them. I think this is where fiduciaries come in and can provide a great service to people. I wish the PBS program expanded more on fiduciaries or other options than SS or government.

:sharebeer



I agree with the fiduciaries comment. But I feel uneasy about someone wanting it both ways. People who save only 3 percent of their paycheck as in the Frontline piece, and raid that for a house purchase, or other non-emergency reasons, and then want to outsource a miracle needed to either a adviser or the government. No substitute for having basic knowledge. If you can drive there should be no excuse for not knowing the basics. I suspect many more do know than admitted, it is just inconvenient to have the discipline. It is also easy to blame 'those hidden fees' or 'overpaid CEO's' and demand equality of outcomes.
We will be seeing more of that when the baby boomers increase the lobbying for the government to somehow make it right for them. That is when we will likely see a asset test for Social Security, as well as attempts to tax sheltered retirement assets for those who are deemed not needing the tax shelter of large Roth balances, etc.
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Re: Jack says pay 1% to own the US stock market?

Postby hoppy08520 » Sun Apr 28, 2013 1:16 pm

arcticpineapplecorp. wrote:I love Jack, but I had to do a double take around 34:40-34:50 when he said:

“Get Wall street out of the equation, get trading fees out of the equation, get management out of the equation. You own American business and you hold it forever. That’s what indexing is. Own a fund that owns the entire US stock market, does no trading and has a cost of 1% a year to own and that is the only way to do it.”

I couldn't find this in the transcript at :http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/john-bogle-the-train-wreck-awaiting-american-retirement/ but I transcribed it off the video from PBS.

I was a bit shocked (unless I heard him wrong, but I listed to that part of the video several times). You can own the entire US market for .05%, not 1%.

Does anyone know why he used that percentage?

Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)

I caught that too. I think that was just an accidental verbal error. I think Mr. Bogle meant to say something like "one tenth of one percent". Obviously he knows the right number but when you do a 60+ minute interview and throw around a lot of numbers, anyone can mix up a decimal.

Mr. Bogle's interview was a tour de force that made the Prudential and JP Morgan people look like bumbling hucksters (which I guess they are actually).
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Re: Frontline--The Retirement Gamble

Postby stan1 » Sun Apr 28, 2013 1:20 pm

Accuse me of being a realist, but a retirement system that a large percentage of the population can't or won't adhere to is probably not a long term viable solution. Pick your percentages, but a system that works for 10% or 20% of the population leaves a lot of people stuck with difficult choices. I think over the next 50 years we'll see a return to multi-generational households as extended families decide that they need more than 1 or 2 incomes to get by (counting SS as an income stream). Already starting to see that with the number of 20-somethings still living at home especially in high cost areas.
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Re: Jack says pay 1% to own the US stock market?

Postby LadyGeek » Sun Apr 28, 2013 1:38 pm

umfundi wrote:
arcticpineapplecorp. wrote:Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)

Here is the table from that Vanguard blog:
Code: Select all
Cumulative impact of fees on ending wealth at various time horizons
                                        Annual Fee Rate
Time Horizon      0.10%      0.25%      0.50%      1.00%      2.00%      3.00%
    3 years      –0.3%      –0.7%      –1.5%      –2.9%      –5.8%      –8.5%
    5 years      –0.5%      –1.2%      –2.5%      –4.9%      –9.4%     –13.7%
   10 years      –1.0%      –2.5%      –4.9%      –9.5%     –18.0%     –25.6%
   20 years      –2.0%      –4.9%      –9.5%     –18.0%     –32.7%     –44.6%
   30 years      –3.0%      –7.2%     –13.9%     –25.8%     –44.8%     –58.8%
   40 years      –3.9%      –9.5%     –18.1%     –32.8%     –54.7%     –69.3%

I must admit this is a revelation to me. I had never thought of the impact of fees and expenses in this way.

Keith

The wiki shows the same effect, but from the perspective of how long your money will last: Bogleheads® investment philosophy - (Keep Costs Low) A 1% impact will reduce your retirement by 10 years (using the assumptions stated in the article).

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Re: Frontline--The Retirement Gamble

Postby umfundi » Sun Apr 28, 2013 1:39 pm

I am not sure what (if anything) is really broken or how to fix it. The one issue I do see is that not everyone has access to tax-advantaged savings plans. And yes, some plans have crummy or only high-cost options.

But, we have done fine, and I hope to put my kids on the right road by funding IRAs for them during their early years of earning.

It is worth noting, I think, that the USA is different than many other countries. In Europe, for example, organized labor looked (in the middle of the last century) to government on issues like health care and pensions. In the USA they went after the large companies.

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Removed

Postby EyeDee » Sun Apr 28, 2013 1:46 pm

.
Removed - reference wrong because of miss reading of various quotes of quotes.
Last edited by EyeDee on Sun Apr 28, 2013 5:21 pm, edited 2 times in total.
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Re: Frontline--The Retirement Gamble

Postby JamesSFO » Sun Apr 28, 2013 1:49 pm

umfundi wrote:I am not sure what (if anything) is really broken or how to fix it. The one issue I do see is that not everyone has access to tax-advantaged savings plans. And yes, some plans have crummy or only high-cost options.

But, we have done fine, and I hope to put my kids on the right road by funding IRAs for them during their early years of earning.

It is worth noting, I think, that the USA is different than many other countries. In Europe, for example, organized labor looked (in the middle of the last century) to government on issues like health care and pensions. In the USA they went after the large companies.

Keith


While not perfect, Social Security tries to provide a bit of a base, a quick estimate is someone who earned $30K/year would get $1200/month or $14,400/year in benefits or 50% of their pre-retirement income.
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Re: Jack says pay 1% to own the US stock market?

Postby Leesbro63 » Sun Apr 28, 2013 2:20 pm

hoppy08520 wrote:
Mr. Bogle's interview was a tour de force that made the Prudential and JP Morgan people look like bumbling hucksters (which I guess they are actually).


I hope that one or more people will arise to be have as much gravitas as Jack, as his message carries further into the 21st century. On the other hand, as long as the rest of the world is drinking the financial industry's Kool-Aid, we Bogleheads can continue to quietly prosper, knowing the truth.
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Re: Frontline--The Retirement Gamble

Postby mickeyd » Sun Apr 28, 2013 2:36 pm

livesoft wrote:So did the correspondent Martin Smith who described at one point that his company had a high-fee plan ever go and get his plan changed to a low-fee 401(k) plan perhaps even with Vanguard funds in it? After all, he is CEO of Rain Media which created the documentary, so that he should have complete control of the plan that his company uses. In essence, Mr Smith is a fiduciary for his company's 401(k) plan.




I know what you mean.

He did seem to be blaming his poor 401(k) choices on some outside entity when he is actually the CEO/owner of the Emmy award wining documentary company and must have approved the Plan.
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Re: Jack says pay 1% to own the US stock market?

Postby RebusCannébus » Sun Apr 28, 2013 2:47 pm

arcticpineapplecorp. wrote: has a cost of 1% a year to own
I heard that, too, and have to believe he meant 1 tenth of 1 percent. Or maybe even 1 basis point.
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Re: Frontline--The Retirement Gamble

Postby mickeyd » Sun Apr 28, 2013 3:01 pm

has a cost of 1% a year to own


Maybe Jack meant "has a cost of less than 1% a year to own", trying to be inclusive of many funds not just TSM. Perhaps Jack will see this post and respond.
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Re: Frontline--The Retirement Gamble

Postby livesoft » Sun Apr 28, 2013 3:07 pm

mickeyd wrote:
livesoft wrote:So did the correspondent Martin Smith who described at one point that his company had a high-fee plan ever go and get his plan changed to a low-fee 401(k) plan perhaps even with Vanguard funds in it? After all, he is CEO of Rain Media which created the documentary, so that he should have complete control of the plan that his company uses. In essence, Mr Smith is a fiduciary for his company's 401(k) plan.



I know what you mean.

He did seem to be blaming his poor 401(k) choices on some outside entity when he is actually the CEO/owner of the Emmy award wining documentary company and must have approved the Plan.


Yep, some good camera work would've had Mr Smith (correspondent) interviewing Mr Smith (small-business owner) and asking why he chose such a crappy 401(k) plan for his company. :)
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Re: Frontline--The Retirement Gamble

Postby mickeyd » Sun Apr 28, 2013 3:20 pm

I have written Mr. Smith an email asking if he has since made any changes to his company's Plan now that he is a more informed consumer. Will post his reply here if I get one.
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Re: Frontline--The Retirement Gamble

Postby Random Musings » Sun Apr 28, 2013 4:36 pm

Diogenes wrote:The program was interesting, excellent point on fund fees. However the personal responsibility aspect critical to investing for retirement was glossed over. There was an undercurrent of 'more government is needed'. Given it was PBS, but that does a disservice to the viewers.

_D_


With respect for more government being needed, that's a two edged sword when it comes to fees. Would that be the edge where they ignore the public sector and allow these high expense ratios or the other edge where TSP gets the best of the best?

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Re: Frontline--The Retirement Gamble

Postby LadyGeek » Sun Apr 28, 2013 4:42 pm

Let's avoid discussing government influence on the media.
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Re: Frontline--The Retirement Gamble

Postby umfundi » Sun Apr 28, 2013 4:43 pm

Random Musings wrote:
Diogenes wrote:The program was interesting, excellent point on fund fees. However the personal responsibility aspect critical to investing for retirement was glossed over. There was an undercurrent of 'more government is needed'. Given it was PBS, but that does a disservice to the viewers.

_D_


With respect for more government being needed, that's a two edged sword when it comes to fees. Would that be the edge where they ignore the public sector and allow these high expense ratios or the other edge where TSP gets the best of the best?

RM

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Re: Frontline--The Retirement Gamble

Postby jay22 » Sun Apr 28, 2013 5:30 pm

Just finished watching it. What an eye-opener it was, specially the fees part. I know 1-2% ER is bad, but never thought it had the potential to erase 2/3rd of your savings in the long run. Jeez.

And the revelation that most of those expensive money managers actually invest in low-cost index funds with their own money. How about that!?
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Re: Jack says pay 1% to own the US stock market?

Postby arcticpineapplecorp. » Sun Apr 28, 2013 5:47 pm

hoppy08520 wrote:I caught that too. I think that was just an accidental verbal error. I think Mr. Bogle meant to say something like "one tenth of one percent". Obviously he knows the right number but when you do a 60+ minute interview and throw around a lot of numbers, anyone can mix up a decimal.

Mr. Bogle's interview was a tour de force that made the Prudential and JP Morgan people look like bumbling hucksters (which I guess they are actually).


I hope it was accidental and that was my inclination too (to think he meant a 10th of 1%...but still that's a big difference and it's too bad that slipped through the final edit. I'm sure if Jack knew what was said (accidentally) he'd want to have corrected that before the final cut. Much of the video was about the impact of fees...I would've thought someone would've caught that before post production.

Maybe they should have us bogleheads watch these things BEFORE they go out on the air!!
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Re: Jack says pay 1% to own the US stock market?

Postby gerrym51 » Sun Apr 28, 2013 6:24 pm

arcticpineapplecorp. wrote:
hoppy08520 wrote:I caught that too. I think that was just an accidental verbal error. I think Mr. Bogle meant to say something like "one tenth of one percent". Obviously he knows the right number but when you do a 60+ minute interview and throw around a lot of numbers, anyone can mix up a decimal.

Mr. Bogle's interview was a tour de force that made the Prudential and JP Morgan people look like bumbling hucksters (which I guess they are actually).


I hope it was accidental and that was my inclination too (to think he meant a 10th of 1%...but still that's a big difference and it's too bad that slipped through the final edit. I'm sure if Jack knew what was said (accidentally) he'd want to have corrected that before the final cut. Much of the video was about the impact of fees...I would've thought someone would've caught that before post production.

Maybe they should have us bogleheads watch these things BEFORE they go out on the air!!



i don't think Jack Vogel mad a mistake at all. although he advocated low fee index funds i took from what he said you should never take any fund unless its under 1 percent.

that how i interpreted it. they were after all using 2 percent fee funds as example.
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Re: Frontline--The Retirement Gamble

Postby mickeyd » Sun Apr 28, 2013 6:41 pm

And the revelation that most of those expensive money managers actually invest in low-cost index funds with their own money. How about that!?


Most of us who have had an opportunity to speak to investment industry folks know this to be quite often the truth. After all, investment managers plan on retiring sometime in the future also. I wonder how many are currently Bogleheads?
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Re: Frontline--The Retirement Gamble

Postby 6miths » Sun Apr 28, 2013 8:28 pm

hoppy08520 wrote:
Strevlac wrote:
texasdiver wrote:Seems like the solution is incredibly simple.

Just change the law so that everyone is entitled to shelter say $25,000 of income in whatever combination of vehicles they chose (401(k), IRA, ROTH etc.)

You don't like your 401(k), fine. Just take your $17,500 and put it in an IRA instead and dump another $5500 in your Roth. Or whatever. You love your 401(k) or your employer makes a generous match? Fine, keep it. Just make the math work out so that individuals who have crummy 401(k) plans or no 401(k) plan at all can chose to put equivalent amounts in their own IRA or Roth. Since my wife has no match in her plan we would instantly chose to drop the 401(k) and put an equivalent amount in a Vanguard IRA. It is ridiculous that we do not have that choice. And for the IRS it would be a wash either way if the total contribution limits didn't change. Then 401(k) advisors would actually have to COMPETE to keep people in their plans rather than owning them as a captive audience.


This is what I have wondered all along. Here we have the single most powerful retirement savings tool for an individual and you are held captive depending on what company you work for and the plan they offer? Just raise the Roth/traditional IRA/401(k) limit to $23K ($17.5K + $5.5K), and BOOM, done.

Maybe I haven't been paying attention, but yours is the first post I've seen to even mention it.

Strevlac, if I may brag and quote myself for a moment, I made the same suggestion in this post ten months ago:
hoppy08520 wrote:I think the regulations and/or tax code should change so people should be allowed to take what they would have put into 401k contributions (as well as a provision to allow employers to contribute a match) and be able to put that into independent retail IRA's. Then all these parasites would be out of business and they'd need to find a real job.

I'm not going to claim credit for this idea. I think some countries (Australia?) do something similar and it's an idea touted frequently. Boglehead author Dan Solin proposed a similar idea, to open up the Federal Thrift Savings Plan (TSP) to 401(k) participants (A Proposal to Fix the Broken 401(k) Plan System.


I thought the program was excellent and was quite struck by how ill-prepared the industry 'experts' seemed. I would have thought that if PBS was coming to interview me I would have had my A-team bring their A-game. These folks seemed very far from either.

Some time ago, I had a PM conversation with EmergDoc and he was telling me how he thought the retirement savings system in Canada was better and I didn't entirely appreciate what he was referring to; however, after reading a bit more, talking with friends in the U.S., and seeing this program, I now get it! In Canada the system is much more stream-lined. Tax-deferred Registered Retirement Savings Plans (RRSP) are independent of employers and anyone over the age of 18 with earned income may contribute up to 18% of their income to the plan (to a maximum of $23,820 in 2013 - amount indexed to inflation). Pretty much any investment vehicle can be held inside the plan including stocks, bonds, GICs, mutual funds, ETFs, cash, REITs, even one's own mortgage. I hold my RRSP with TD Waterhouse and there are no fees other than trading fees and those on the vehicles held. So I pay $10 to buy my VTI and then pay the 0.05% per year. Thankfully, Vanguard came to Canada 2 years ago and now I can get very low cost Canadian bond and equity ETFs which is good because Canadian mutual fund fees are among the highest in the world.

Warren Buffet's story of the Gotrocks and the shavers of the Golden Crumbs comes to mind. Too many middlemen, too little value added!
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Re: Jack says pay 1% to own the US stock market?

Postby JamesSFO » Sun Apr 28, 2013 9:35 pm

arcticpineapplecorp. wrote:
hoppy08520 wrote:I caught that too. I think that was just an accidental verbal error. I think Mr. Bogle meant to say something like "one tenth of one percent". Obviously he knows the right number but when you do a 60+ minute interview and throw around a lot of numbers, anyone can mix up a decimal.

Mr. Bogle's interview was a tour de force that made the Prudential and JP Morgan people look like bumbling hucksters (which I guess they are actually).


I hope it was accidental and that was my inclination too (to think he meant a 10th of 1%...but still that's a big difference and it's too bad that slipped through the final edit. I'm sure if Jack knew what was said (accidentally) he'd want to have corrected that before the final cut. Much of the video was about the impact of fees...I would've thought someone would've caught that before post production.

Maybe they should have us bogleheads watch these things BEFORE they go out on the air!!


I found the 1% jarring too and 0.1% would be nice across the board. Either way the principle stands and how many times per week do we see folks posting here with over-1% 401K fees.
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Re: Frontline--The Retirement Gamble

Postby Don46 » Sun Apr 28, 2013 10:24 pm

I recorded the the Frontline show and watched it tonight. I learned a lot and would recommend younger workers see it. I am approaching retirement and am in good shape, thanks to very steady employment and a willingness to invest for the long haul. I am certain I could have done better by learning years ago what John Bogle had to say, but I've come out well despite some lack of caution and mistakes along the way.

I felt very sympathetic toward those people in the documentary who are not doing so well. I don't blame them for not being educated about retirement planning. I admired Martin Smith for exposing his own cluelessness; that was brave and honest. The nostalgia for pension plans is also perfectly understandable to me. I believe our society would be much happier if we all felt more secure. I don't think everyone in the work force should be expected to become investment savvy. I don't blame a blue collar worker, a teacher, or office worker who who looks at retirement plan providers as professionals trying to help them instead of sharks trying to devour their hard-earned savings. I want more regulation and more programs like Frontline exposing the rapacity of this racket. That is exactly what John Bogle stands for in my mind.
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Re: Frontline--The Retirement Gamble

Postby Angst » Sun Apr 28, 2013 10:34 pm

Don46 wrote:I recorded the the Frontline show and watched it tonight. I learned a lot and would recommend younger workers see it. I am approaching retirement and am in good shape, thanks to very steady employment and a willingness to invest for the long haul. I am certain I could have done better by learning years ago what John Bogle had to say, but I've come out well despite some lack of caution and mistakes along the way.

I felt very sympathetic toward those people in the documentary who are not doing so well. I don't blame them for not being educated about retirement planning. I admired Martin Smith for exposing his own cluelessness; that was brave and honest. The nostalgia for pension plans is also perfectly understandable to me. I believe our society would be much happier if we all felt more secure. I don't think everyone in the work force should be expected to become investment savvy. I don't blame a blue collar worker, a teacher, or office worker who who looks at retirement plan providers as professionals trying to help them instead of sharks trying to devour their hard-earned savings. I want more regulation and more programs like Frontline exposing the rapacity of this racket. That is exactly what John Bogle stands for in my mind.

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Re: Frontline--The Retirement Gamble

Postby Diogenes » Sun Apr 28, 2013 11:33 pm

Don46 wrote:
I felt very sympathetic toward those people in the documentary who are not doing so well. I don't blame them for not being educated about retirement planning. I admired Martin Smith for exposing his own cluelessness; that was brave and honest. The nostalgia for pension plans is also perfectly understandable to me. I believe our society would be much happier if we all felt more secure. I don't think everyone in the work force should be expected to become investment savvy. I don't blame a blue collar worker, a teacher, or office worker who who looks at retirement plan providers as professionals trying to help them instead of sharks trying to devour their hard-earned savings. I want more regulation and more programs like Frontline exposing the rapacity of this racket. That is exactly what John Bogle stands for in my mind.


Don, I agree about feeling sympathetic but let's be clear on the question. Who is responsible, and what could/should have been done differently? I don't think a lower fee on a fund would have changed their situation.
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Re: Frontline--The Retirement Gamble

Postby bUU » Mon Apr 29, 2013 7:55 am

Diogenes wrote: it is not ok to outsource your financial future any more than you should expect someone to pay your bills.

I don't see the logic in that connection, unless you're including paying bills when there isn't enough money to cover those bills. Paying bills, when you aren't choosing between rent and food, is a very straight-forward activity. There are very few variables, little is left to chance. (Will the check reach the payee, if you mail it? Generally, yes.) Successfully saving for the future is a comparatively complex activity, that is often actually infeasible, given the barriers thereto.
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Re: Jack says pay 1% to own the US stock market?

Postby Spades » Mon Apr 29, 2013 8:54 am

arcticpineapplecorp. wrote:Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)


Yeah, I thought Jack's example was good at driving the message home, but yeah I was thinking in the back of my head, even 1% in fees will cause something like that over a 30 year time period.

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Re: Frontline--The Retirement Gamble

Postby Spades » Mon Apr 29, 2013 8:57 am

Diogenes wrote:
Someone can 'work hard' but it is not ok to outsource your financial future any more than you should expect someone to pay your bills.


What about our health and hiring doctors? Obviously, it is good to hire a professional for something that important why not our own investments? I agree with the spirit of your comment that it is best for someone to stay involved with their investments, but that is why the fiduciary thing is important. Unfortunately, I bet there will be some bad fiduciaries just like there are bad doctors too.

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Re: Frontline--The Retirement Gamble

Postby Don46 » Mon Apr 29, 2013 9:37 am

Diogenes wrote:
Don, I agree about feeling sympathetic but let's be clear on the question. Who is responsible, and what could/should have been done differently? I don't think a lower fee on a fund would have changed their situation.
Someone can 'work hard' but it is not ok to outsource your financial future any more than you should expect someone to pay your bills.


Now it seems to be the individual worker who is responsible not only for earning the money and taking all the risk of investing it, but also for screening out all of the predatory wolves in sheep's clothing endorsed by the employers. It seems wrong to me.
I'd like to see more attention to the welfare of workers and less concern about protecting the retirement fund industry. Instead of increasing security and well-being in old age, the system we have now is creating terrific anxiety, even among many of those who have done things right.
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Re: Frontline--The Retirement Gamble

Postby Spades » Mon Apr 29, 2013 12:23 pm

Don46 wrote:
Now it seems to be the individual worker who is responsible not only for earning the money and taking all the risk of investing it, but also for screening out all of the predatory wolves in sheep's clothing endorsed by the employers. It seems wrong to me.
I'd like to see more attention to the welfare of workers and less concern about protecting the retirement fund industry. Instead of increasing security and well-being in old age, the system we have now is creating terrific anxiety, even among many of those who have done things right.


I think what has happened is that our education system and families are not grasping the reality of today's America. Do you think all 18 year olds should know something about investing? I do. We educate them for the purpose of benefiting the nation and preparing them to enter the workplace right?

I also think it's wrong that we should expect our employer to look out for our retirement. The employer should be focused on providing goods or services for the economy with labor and resources, though them taking the risk of investing my money might be negotiable.

Let's teach a man to fish instead of handing it to them.

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Re: Jack says pay 1% to own the US stock market?

Postby zed » Mon Apr 29, 2013 12:31 pm

Spades wrote:
arcticpineapplecorp. wrote:Also, 1% wipes out 25.8% of one's portfolio over 30 years (from http://vanguardblog.com/2011/10/28/stop ... f-returns/)


Yeah, I thought Jack's example was good at driving the message home, but yeah I was thinking in the back of my head, even 1% in fees will cause something like that over a 30 year time period.

:sharebeer



It had to be a slip of the lip or whatever. Jack was quoted in the book "Who Stole the American Dream, Hedrick Smith" (good read by the way) as saying :

"You can buy an index fund for one-tenth of 1 percent. No turnover expense. No sales load or commission. You get 4.9 percent investment gain out of 5 percent growth."

zed

edited 1 time to add author reference
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Re: Frontline--The Retirement Gamble

Postby HardKnocker » Mon Apr 29, 2013 12:36 pm

Wall Street is not a zero-sum game.

For every winner there is a loser.
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Re: Frontline--The Retirement Gamble

Postby sesq » Mon Apr 29, 2013 12:52 pm

A thought occurred to me about Mr. Zweig's (sp?) comment about the fund managers holding index funds. Seems like that would be the easiest way to stay in compliance with insider trading reviews that must occur in big banks. When I was in public accounting that was the conclusion I drew.

I re-watched it with my father who is mostly retired, but is an attorney and a CFP and CPA, and he mentioned that the fiduciary part is a very hot topic in a lot of financial planning circles (and related fields). He is a RIA, so is a fiduciary to his clients, but found that part notable. As a DIY investor I didn't really think much of it one way or the other.
sesq
 
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