Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

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absolute zero
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by absolute zero » Wed May 06, 2020 11:40 pm

DesertMan wrote:
Wed May 06, 2020 6:48 pm

Instead we see:
* 401k et al. fees consistently north of 0.25% for S&P 500 funds and it just goes up from there
* Same for 529 plans, and states constantly changing plan sponsors and investment options based on what is perceived to be best for the state, not the investors

I wish I could go back in time and tell my former self to stick to taxable accounts, IRAs and ESAs. IMHO, sponsored investment programs are obsolete--a relic of the pre-computer age.
In my 401k I pay 0.035% ER for an SP500 index fund, and 0.035% ER for a bond index fund. I assume that’s lower than what’s offered in most 401ks, but I have no idea. Where do you get your statistics on 401k expense ratios?

I read earlier today that 80% of 401k’s now have a Roth option. You’re telling me that you’d advocate investing in a taxable account over a Roth 401k? C’mon!

With Roth 401k you get:
- full asset protection
- no tax drag (that right there is a 0.3%-0.4% per year)
- no taxes on earnings

For the record, I think pre-tax 401k is a much better choice for most investors. I just used Roth as an example because it makes for a more simple comparison to taxable accounts.

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willthrill81
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by willthrill81 » Wed May 06, 2020 11:59 pm

My 401k has several index options with expense ratios under 10 basis points.

The S&P 500 fund in my 457 has an ER of .003%, three-tenths of 1 basis point.

Beyond that, analysis by others on the forum has shown that expense ratios (including any fees charged to participants) must generally be high for tax-deferred contributions to not be mathematically superior to taxable contributions. IIRC, the fees must generally be above 1%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

wootwoot
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by wootwoot » Thu May 07, 2020 12:08 am

DesertMan wrote:
Wed May 06, 2020 6:48 pm
willthrill81 wrote:
Wed May 06, 2020 12:14 pm
Dottie57 wrote:
Wed May 06, 2020 12:10 pm
Big Dog wrote:
Tue Oct 22, 2019 2:38 pm
maybe I'm an outlier but the author is correct on all his points. Yes, I get the issue of 'speculative investments', and as a former C-level company officer, I refused to allow speculative investments into our 401k plan. (HR reported to me.) But, as a result, two of our long time engineers, refused to contribute bcos they could not invest in speculative investments in their 401k. We even had a match, which they lost out on.Every year during open enrollment I would argue with them, but to no avail.

My point is that for at least these two, the author is spot-on. Just as I, and many of you, probably react negatively to speculative investing in a 401k, there are a few that want that (ill-advised) benefit...so, they just invested outside in taxable and IRA accounts.
Your long time engineers were not very smart.
I'm not generally a fan of government entities protecting people from themselves, but I have absolutely no problem with an employer and/or 401k provider choosing to not allow participants to buy individual stocks, options, lottery tickets, etc. Some will choose to take a bad path anyway, as the above example demonstrates, but the employer is not obliged to make it easy.
Okay. Going to vent. This is not directed at you so please don't take it that way.

The problem is that once you let the camel's nose into the tent, you must allow any other part of the camel to follow suit. The biggest problem with all of these non-individually-directed investment plans (401(k), 403(b), 457, 529, variable annuities... the whole lot of them) is that there is a middleman between the investor and her assets. There is a grandiose delusion that the plan sponsor is supposedly a fiduciary with the best interest of the investor in mind, supposedly based on various laws like ERISA that supposedly make the plan sponsor do the right thing. It doesn't work. Empirically, scientifically, it is impossible to conclude that any of these plan sponsors are acting in a fiduciary capacity. If they were, they would all be offering zero ER funds (as such are now widely available to anyone) and charging a nominal administration fee for the actual costs of running the plan.

Instead we see:
* 401k et al. fees consistently north of 0.25% for S&P 500 funds and it just goes up from there
* Same for 529 plans, and states constantly changing plan sponsors and investment options based on what is perceived to be best for the state, not the investors

I wish I could go back in time and tell my former self to stick to taxable accounts, IRAs and ESAs. IMHO, sponsored investment programs are obsolete--a relic of the pre-computer age.
Do you realize that you can rollover a 401k into an IRA?

investingdad
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by investingdad » Thu May 07, 2020 6:29 am

baconavocado wrote:
Tue Oct 22, 2019 12:04 am
Every time I open Yahoo Finance, the first thing that appears is either "Motley Fool Issues Rare Double Down" or "Man Makes $3M Day Trading".

Ignore.
The day trade ad, yep...the two guys on the private jet. Love it.

Kruser64
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by Kruser64 » Thu May 07, 2020 12:38 pm

wootwoot wrote:
Thu May 07, 2020 12:08 am

Do you realize that you can rollover a 401k into an IRA?
Only if you separate from service. And of course you have to navigate the administrative hassle and the potential of being out of the market for some time as a lot of plans don't support in-kind transfers.

Kruser64
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by Kruser64 » Thu May 07, 2020 12:41 pm

willthrill81 wrote:
Wed May 06, 2020 11:59 pm
My 401k has several index options with expense ratios under 10 basis points.

The S&P 500 fund in my 457 has an ER of .003%, three-tenths of 1 basis point.

Beyond that, analysis by others on the forum has shown that expense ratios (including any fees charged to participants) must generally be high for tax-deferred contributions to not be mathematically superior to taxable contributions. IIRC, the fees must generally be above 1%.
You mean all these rules and all this hassle for a measly 1%? :annoyed

Kruser64
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by Kruser64 » Thu May 07, 2020 12:49 pm

absolute zero wrote:
Wed May 06, 2020 11:40 pm
DesertMan wrote:
Wed May 06, 2020 6:48 pm

Instead we see:
* 401k et al. fees consistently north of 0.25% for S&P 500 funds and it just goes up from there
* Same for 529 plans, and states constantly changing plan sponsors and investment options based on what is perceived to be best for the state, not the investors

I wish I could go back in time and tell my former self to stick to taxable accounts, IRAs and ESAs. IMHO, sponsored investment programs are obsolete--a relic of the pre-computer age.
In my 401k I pay 0.035% ER for an SP500 index fund, and 0.035% ER for a bond index fund. I assume that’s lower than what’s offered in most 401ks, but I have no idea. Where do you get your statistics on 401k expense ratios?

I read earlier today that 80% of 401k’s now have a Roth option. You’re telling me that you’d advocate investing in a taxable account over a Roth 401k? C’mon!

With Roth 401k you get:
- full asset protection
- no tax drag (that right there is a 0.3%-0.4% per year)
- no taxes on earnings

For the record, I think pre-tax 401k is a much better choice for most investors. I just used Roth as an example because it makes for a more simple comparison to taxable accounts.
Why do you think pre-tax is better for most investors?

Taxable account over Roth 401k? I would say....no....but I would still want a bit of a mix for liquidity purposes. :happy

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willthrill81
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by willthrill81 » Thu May 07, 2020 1:06 pm

Kruser64 wrote:
Thu May 07, 2020 12:41 pm
willthrill81 wrote:
Wed May 06, 2020 11:59 pm
My 401k has several index options with expense ratios under 10 basis points.

The S&P 500 fund in my 457 has an ER of .003%, three-tenths of 1 basis point.

Beyond that, analysis by others on the forum has shown that expense ratios (including any fees charged to participants) must generally be high for tax-deferred contributions to not be mathematically superior to taxable contributions. IIRC, the fees must generally be above 1%.
You mean all these rules and all this hassle for a measly 1%? :annoyed
A greater than 1% higher annualized return can add up very quickly due to compounding.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

illumination
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by illumination » Thu May 07, 2020 1:38 pm

Yahoo! news is absolute click-bait junk.

I will say though, I would love to see a new law where basically everyone could have the option of something like a Solo 401(k) even if they weren't self-employed and have the ultimate portability and fund choices. If you want the matching contributions in your company plan or your own 401(k), you could just choose. We sort of have that with an IRA, but the limits are way too small.

wootwoot
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by wootwoot » Thu May 07, 2020 2:31 pm

Kruser64 wrote:
Thu May 07, 2020 12:38 pm
wootwoot wrote:
Thu May 07, 2020 12:08 am

Do you realize that you can rollover a 401k into an IRA?
Only if you separate from service. And of course you have to navigate the administrative hassle and the potential of being out of the market for some time as a lot of plans don't support in-kind transfers.
How many people stay with the same employer their whole life? In many industries it's common to move every 3-5 years. Vanguard and others make a rollover a super simple process, not sure what there is to complain about here.

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MathIsMyWayr
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Re: Yahoo: The Downsides of 401(k)s That You’ve Never Heard Of

Post by MathIsMyWayr » Thu May 07, 2020 2:33 pm

willthrill81 wrote:
Thu May 07, 2020 1:06 pm
Kruser64 wrote:
Thu May 07, 2020 12:41 pm
willthrill81 wrote:
Wed May 06, 2020 11:59 pm
My 401k has several index options with expense ratios under 10 basis points.

The S&P 500 fund in my 457 has an ER of .003%, three-tenths of 1 basis point.

Beyond that, analysis by others on the forum has shown that expense ratios (including any fees charged to participants) must generally be high for tax-deferred contributions to not be mathematically superior to taxable contributions. IIRC, the fees must generally be above 1%.
You mean all these rules and all this hassle for a measly 1%? :annoyed
A greater than 1% higher annualized return can add up very quickly due to compounding.
With a 1% higher fee, you will end up about 13% and 15% less after 25 and 30 years of investing, respectively. I would not call it measly. An extra fee of only 1% may force you to work 3-4 years longer before being able to retire.

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