No Joke: American Workers Are Leaving $24 Billion in Free Money on the Table – Motley Fool 08-08-15

Salient to Investors:

Sean Williams writes:

  • FRB of St. Louis reports the US personal savings rate averaged 4.8% in June, 2015, no change from a year ago. The OECD reports the rate in 2011 for Germany was 11.4% and for France 16%.
  • Hearts & Wallets reports that in 2014, 45% of surveyed households set aside money for unexpected expenses. 56% of households participated in employer-sponsored retirement plans (ESRPs). 22% of savings went into ESRPs. In 2013, 37% of surveyed households set aside money for unexpected expenses. 60% of households participated in employer-sponsored retirement plans, and 29% of savings went into ESRPs.
  • Financial Engines found that 25% of all workers insufficiently contributed to their ESRP to earn full matching funds from their company. 25% of ESRPs don’t match funds.

Read the full article at http://www.fool.com/retirement/401k/2015/08/08/no-joke-american-workers-are-leaving-24-billion-in.aspx

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Millennials End Up in Stocks for Head Start on Retirement – Bloomberg 08-04-14

Salient to Investors:

  • The Transamerica Center for Retirement Studies said millennials – born from 1979 to 1996 – began saving for retirement at a median age of 22, versus 27 for Generation X and 35 for baby boomers. 71% of millennials offered 401(k) or similar plans contributed a median 8% of their salaries.
  • Sarah Holden at the Investment Company Institute said millennials were nervous about stocks and were less willing to take risk, but 401(k) plans are keeping them in equities. In 2012, 22% of heads of households younger than 35 owning mutual funds said they would only invest in financial instruments with zero or below-average risk even for a below-average return – more than any other age group except 65 and older.
  • Bankrate.com said 39% of adults aged 18 to 29 said cash was their preferred investment for money not needed for at least 10 years, 3 times the percent that picked the stock market.
  • Jean Young at Vanguard said defined contribution retirement plans, especially those with automatic enrollment or options that reduce risk as an employee ages, is keeping millennials invested in equities despite their risk wants.
  • Alicia Munnell at the Center for Retirement Research said the total effect is positive for the economy because in the long-term, more savings means more investment which means more growth.
  • Social Security’s trust funds will be depleted by 2033, after which tax income would be able to pay 75 percent of scheduled benefits through 2088.
  • Pew Research Center said 51% of millennials do not think there will be any money left in the Social Security system by the time they retire, while 39% said SS will only be able to provide benefits at reduced levels.
  • William Emmons at FRB of St. Louis said millennials have a large amount of student-loan debt but are cutting back on other borrowing, like not buying houses or maxing out credit cards.

 

 

 

Read the full article at http://www.bloomberg.com/news/2014-08-04/millennials-end-up-in-stocks-for-head-start-on-retirement-saving.html

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ConocoPhillips Best Among 401(k) Plans With Facebook Last – Bloomberg 07-22-14

Salient to Investors:

  • ConocoPhillips and Abbott Lab are among the most lucrative retirement benefits, and Facebook, Amazon.com and Whole Foods Market among the least lucrative of 401(k) plans at the 250 biggest companies in the US.
  • Over 40 percent of companies allow workers to take company contributions with them if they leave.
  • 401(k)s are corporate America’s primary retirement vehicle with 61 million participants in 2011 versus 7.5 million in 1984.
  • Mike Alfred at BrightScope said some companies believe it is their job to take care of employees, while others are sheer profit machines who offer only the minimum to be competitive.
  • Energy and biotech generally scored high in the Bloomberg rankings.

Read the full article at http://www.bloomberg.com/news/2014-07-22/conocophillips-best-among-401-k-plans-with-facebook-last.html

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The ‘Mirage of Success’ Shimmering in Your 401(k) – Bloomberg 1-28-14

Salient to Investors:

Matt Fellowes, formerly with Brookings, said:

  • 64 percent of 401(k) plan participants are accumulating debt faster than they are accumulating savings.
  • For half of the 401(k) marketplace, 96 percent of the participant’s balance is a function of their contributions and employer matches, and only 4 percent is investment returns.
  • Generally speaking, people are spending too much today and saving too little for tomorrow. 
  • 84 percent of the US population does not have 3 or more months of income saved in a liquid account.

Read the full article at http://www.bloomberg.com/news/2014-01-28/the-mirage-of-success-shimmering-in-your-401-k-.html

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The Cautionary Tale of Lord Grantham – Bloomberg 05-15-13

Salient to Investors:

Never put too much of your portfolio in a few investments, or in one country or industry. The employee with a significant chunk of his 401(k) in his employer’s stock, or gets his contribution matched in company stock, risks both job and  retirement plans if a setback for the company threatens.

Never put too much faith in an emerging market. Canada was the Brazil or China of its day; growing at an average of 6.7 percent per year from 1896 to 1912, and more than 10 percent in 1905 and 1906, even after inflation.

The IMF says emerging markets will grow 5.6 percent in 2013, while Morningstar says emerging market mutual funds attracted $26.2 billion over the past year, far more than any other equity fund category. The MSCI Frontier Markets Index is up 8.5 percent in 2013, 9 times more than the broader emerging-market index.

Jeremy Grantham at GMO says the problem with growth companies and growth countries is that they so often outrun the capital with which to grow and must raise more capital.

Read the full article at http://www.bloomberg.com/news/2013-05-15/the-cautionary-tale-of-lord-grantham.html

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PBS Frontline’s ‘The Retirement Gamble’ Got 401(k)s Right – Forbes 05-13-13

Salient to Investors:

Key things to consider about 401(k)s:

  • Keep total investment fees under 1%; including fund expenses, administration, asset management, and any other silent fees.
  • Over the long-term, few professionally managed funds outperform their peer market index. The hot fund of one year will often be below average in the years ahead. So use index funds.
  • Choose a provider that takes on a fiduciary responsibility with your 401(k) – in writing.  Fund and insurance providers as well as the sales agents, too often referred to as an “adviser”, are often biased by their own offerings and/or earnings – why many 401(k) plans offer very few if any index funds.

Watch PBS Frontline’s The Retirement Gamble.

Read the full article at http://www.forbes.com/sites/stuartrobertson/2013/05/13/pbs-frontlines-the-retirement-gamble-got-401ks-right/

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If you care about your retirement savings and you haven’t had a chance to view PBS Frontline’s The Retirement Gamble, pull up a seat and take a view.  It could be worth a whole lot in terms of understanding what’s needed to build the nest egg you need and take out all the financial mumbo jumbo that makes 401(k)s confusing.

If you don’t have an opportunity to watch the full show, the following are key things to consider whether you are an employer offering a 401(k) or an employee investing in one:

  1. Costs Matter:  Keep investment fees low as it can help keep more money invested in the markets versus in the hands of financial providers.   These fees include things you may not be aware of including fund expenses, administration, asset management, and any other fees that silently but surely are taken from your 401(k) account.  Total fees of less than 1% is the goal.  The difference of paying even 1% more in fees can cost you hundreds of thousands of dollars over the course of a career.
  2. Use Index Funds:  Over the long-term, few professionally managed funds (known as actively-managed funds) outperform its peer market index.  An index fund tracks a particular benchmark such as the S&P 500 or the Dow Jones Industrial Average.  The hot fund of one year will often be below average in the years ahead.  The steady but true indexes are the efficient way to earn market returns, eliminating the stock picking risk of fund managers.
  3. Choose a provider that takes on a fiduciary responsibility with your 401(k):  This simply means use a provider that agrees in writing to act in your company’s 401(k) plan’s best interest.  Fund and insurance providers as well as the sales agents (too often referred to as an adviser) are often biased by their own offerings and/or earnings which could mean your plan doesn’t have the best fund options to position employees for a bigger retirement.  It’s also probably why many 401(k) plans offer very few if any index funds.

It’s pretty straightforward and common sense.  Now it’s just getting more employees and employers to take the plunge and make the changes necessary — including changes to their plan, or  their 401(k) providers – to help ensure a much more secure financial future for everyone.

The Anti-Gamble Retirement Plan – Forbes 05-12-13

Salient to Investors:

Jon Stein at Betterment writes:

  • Everybody should watch the PBS Frontline report, The Retirement Gamble.
  • Educate yourself
  • Choose low cost investments… every time. Morningstar found that low-cost funds outperformed high-cost funds in every single time period and data point tested. A 2 percent difference in fees can add up to a loss of two-thirds in returns over time.
  • Don’t delay investing – the effect of positive compounding is bigger than you think.
  • Indexing wins hands down.
  • Seek Transparency. Complex structures often indicate legal kickbacks.
  • Ask for Fiduciary Duty. Many “advisors” are not registered investment advisors, but brokers or salespeople for the funds you may invest in, so do not have to act in your best interest.
  • Don’t Do It On Your Own.

Read the full article at http://www.forbes.com/sites/jonstein/2013/05/12/the-anti-gamble-retirement-plan/

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The Retirement Gamble – PBS Frontline 04-25-13

Salient to Investors:

Americans are facing a retirement  crisis. Half say they can’t afford to save for retirement, while one-third say they have no retirement funds.

Brooks Hamilton says you will need 10 to 15 times your income at retirement to be OK, which means you have to save more, and get serious about funding early and not wait until you are in your 40s.

60 million Americans have company 401(k) plans. Author Helaine Olen said the 401(k) started in the late 1970s and early 1980s as a tax dodge for high earners and no-one ever thought it would apply to the rest of us.

Teresa Ghilarducci at The New School said 401(k)s are one of the only products Americans buy that they don’t know the price of, the quality of, and the danger of – because the mutual fund industry has protected itself against regulation that would expose the dangers and price of their products. Ghilarducci said basically your advisor is out for himself and to maximise his sales and the way to do that is to be loyal to the mutual fund and try to sell you the most profitable products.

Zvi Bodie said 401(k)s place the burden of retirement income planning on the participants and the vast majority of ordinary people don’t know how to do that. Bodie said you are not getting superior performance for paying fund fees and there is no scientific evidence that mutual funds outperform a simple strategy of holding a market index, and broker-dealers are not fiduciaries and under no obligation to put you into the best investment, and just need to meet a suitability standard.

Ron Lieber at the New York Times said the mutual funds made themselves the very foundation of the 401(k) plan. Lieber says that the best way to find out if the person trying to sell you a financial product is really a salesman is to ask them if they are willing to sign a pledge that says they will act as a fiduciary at all times with all products – if they won’t, walk away.

In 2008, the year the market crashed, Wall Street paid out $18 billion dollars in bonuses.

The average actively managed mutual fund carries annual expense of 1.3%, some funds charge 2 percent and others as much as 5 percent. Ron Lieber said those expenses can add up over the fund lifetime to well in the six figures and be the difference between running our of money in retirement and having some left over to pass on to heirs.

Jason Zweig at the Wall Street Journal said many 401(k) plans are lousy: their funds choice sucks, fund fees are outlandishly high – often a person can be paying 10 times as much to invest in a 401(k) as his or her neighbor. Zweig the evidence of the last 25 years is that all else being equal, you should always buy the cheaper fund, and said one of the ultimate dirty secrets of the fund industry is that many people who run other fund companies own index funds in their own accounts.

Jack Bogle at Vanguard said the management company wanting more fees is natural for most businesses but not for this business, and  recommends minimizing Wall Street’s take. Bogle said that assuming a fund’s gross return is 7%, an annual fee of 2% annual fee over 50 years results in 2/3 of the fund’s gains are lost – the tyranny of compounding costs. Bogle says the  investor puts up 100 percent of the capital, takes 100 percent of the risk, yet gets only 33 percent of the return. Bogle says indexing is the only way to invest in American business because you have only a 1 percent chance of beating the market over time.

Bogle says the system is almost rigged against human psychology that says something that has done well in the past will do well in the future is categorically false – there is a high likelihood that a fund at the peak is likely to go down in the valley.

Most investors are unaware of all the types of fees they are paying. Mutual funds rely on brokers and plan administrators to get onto the 401(k) plan menu and pays them a revenue sharing fee – a legal kickback which is not paid by the fund company, but by the participant. Bogle says these payments are part of the system.

Robert Hiltonsmith said the 401(k) industry is not built to benefit the plan participants and that there is no incentive for the industry to change.

Studies over various time periods and in bull and bear markets repeatedly show that actively managed funds fail to beat index funds. Hot funds are loved by the financial media and tempt investors.

There are no standards on who can give advice to retirement plans. The Bureau of Labor, which regulates employee retirement plans, says anyone can hold themselves out to be an expert, a financial advisor, retirement planner, financial planner, etc.

Helaine Olen says the term financial advisor means almost nothing and could mean a financial planner or a broker who is really a salesman. Registered investment advisors are fiduciaries and required by law to act in their client’s best interest.  But the vast majority of so-called advisors, some 85% are not fiduciaries but merely brokers or salesman.

The financial services industry lobbied to get the Department of Labor to withdraw its fiduciary rule proposal, made in the fall of 2010, that required all financial advisors to put their clients interests before their own when dealing with retirement accounts.

Over $10 trillion has been given to the financial services industry in the past two decades.

Watch the full video at http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

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Is it worth paying for 401(k) advice? – USA Today 03-06-13

Salient to Investors:

Studies suggest that investors who use advisers get better returns than individuals going at it alone. Advisers usually have confidence and discipline that are key factors in successful investing.

Most people do not have the time or interest in managing their own portfolios. Individual investors can be their own worst enemy by making emotional decisions about their investments; including bad timing like getting out of the market during a crisis, chasing hot sectors of the economy, or jumping into the latest investment fad being touted by the news media.

Read the full article at http://www.usatoday.com/story/money/personalfinance/2013/03/09/401k-investment-advisor/1968125/

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A new 401(k) success formula: Low cost plus advice – Reuters 02-28-13

Salient to Investors:

Mark Miller writes:

  • A growing number of employers are adding unbiased third-party investment guidance options as they work to improve their retirement plans.
  • The best type of planner: independent advisers who have the fiduciary responsibility to put client interests first.
  • A Deloitte Center for Financial Services survey found that 58 percent of Americans don’t have a retirement plan, 39 percent don’t think their returns will be sufficient to provide a decent retirement income, 57 percent prefer handling their own retirement planning, and 38 percent say they don’t need professional advice.
  • Aon Hewitt, said one-third of all US plans offer a third-party investment advisory service either online or by phone, 25 percent offer in-person consultations, but only 15 percent of plan holders used a personalized advisory service in 2011.
  • BLS says just 49 percent of workers at companies with 100 or fewer workers have access to a retirement savings plan on the job.

Read the full article at http://www.reuters.com/article/2013/02/28/us-column-miller-idUSBRE91R1A320130228

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