Over half of all Americans cannot afford to save for retirement. Over one third have no retirement savings
at all. The cost of living continues to rise, along with insurance, utilities, food, taxes, etc.
Current retirees are stressed and you should be too. Savings and nest eggs are not producing any income,
many people are at the poverty level. College educations eat up savings and whatever dividends you earn.
If you make $100,000 per year, you will need $1,500,000 to be "ok" in todays retirement.
Over 75 million Americans signed up for their companies 401k. Yet people are confused, they don’t
know what to do, and above all they are misled. The choices are aggressive, moderate, or conservative. A
401k is a product Americans buy into they don’t know its price, they don’t know its quality, and they
don’t know its danger.
The mutual fund industry has been able to protect themselves against regulation that would expose the
danger and price of their products.
1970 almost 45% of employees had a pension, a guarantee by an employer their would be a good return
percentage of your salary and benefits upon retirement. Workers never had to worry about how to manage
their own savings plan, it was all done for them.
The focus is to protect your accounts and money against risk:
401k opened up for business's that didn’t have or offer a pension.
401k plans place the burden on the individual participant to have an adequate retirement. A vast majority
of ordinary people don’t know how to manage their investments, plan for retirement, or how to eliminate
risk. It’s a complex task.
A 401k presents 3 different risk:
1) How much a person needs to save for retirement.
2) How to invest the money, so you have a lump sum of money to retire.
3) How to withdrawl the money so you don’t outlive your assets.
Enter the Mutual Fund Industry:
Start saving $300 a month when your 23 yrs old and you will retire a millionaire.
When the stock market is flying nobody cares that mutual funds charge high management fees, because
when the returns are great nobody thinks how much it is costing them, specially when your earning 15%-
Remember "Star" mutual fund manager Peter Lynch of Fidelity Magellan Funds. He encouraged
everyone to "jump in" by publicly stating "you shouldn’t be intimidated, everyone can do well in the
stock market, you have the skills, you have the intelligence, it doesn’t require any education, all you have
to have is patience, and do a little research, you got it.
People have used their 401ks as a bank account. Remember 2008? The year the stock market crashed.
Wall Street dolled out $18 Billion in bonus's from fees, all from investors.
401k's have all kinds of Fees:
Trading fees, marketing fees, record keeping fees, administration fees, and fees when you withdrawl
The fees are so complex. Some fees are sub-types of other fees.
Theres fees to take a loan, fees when after you retire and take money out.
The average mutual fund carries an annual expense of 1.3% - 5%.
You add these fees up over 20-50 yrs in a 401k plan, and that’s a lot of money. Most 401k programs are
bad, the choices are bad and the fees are bad.
The bigger the profit of the management company the smaller the profit the investor gets.
Assume you receive a gross annual return of 7% and a charge of 2% annual fee.
Over 50 years the difference in the net between 7% and 5% is staggering, you have lost 2/3rds or 63% of
what you would have had.
Compound returns is overwhelming by compound cost, it’s a mathematical fact. Nobody pays attention to
DO YOU REALLY WANT TO INVEST IN A SYSTEM WHEN YOU:
1) Put up 100% of the capital in a mutual fund.
2) You take 100% of the risk.
3) You get 30% of the return.
You invest in a mutual fund making 7% over a 50 yr period. Your paying 2% in fees. The 2% will erode
2/3rds of your gains.
An account with $100,000 balance, reduce it 2%. The end of 50 yrs the annual charge would be
$63,242.73. A loss of 63%.
Leaving you with $36,757.27
JP Morgan Chase offers more than 100 mutual funds that charge from 1⁄2% to more than 2.5% annually.
Most investors are unaware of most of the types of fees they are paying.
In order to get offerings on 401k menus funds rely on brokers and plan administrators. Brokers ask for a
payment or a share of the sales to their investors (pay to play arrangement) or (kick back). Its another
layer of cost to retirement plans. And if you sell your funds they will receive a portion of the revenue you
earn from selling them to you.
Fees are not paid by the fund company. The bill or fee is passed to you. So the pay to play fee the funds
pay the broker to sell you their fund. Your paying for.
In 2012 a study by Robert Hiltonsmith found that a typical family pays $155,000 in Wall Street fees on
their 401k's. Your being charged a lot of money by financial firms that don’t do a lot in a lot of cases. The
system is not built for individuals, and its not built for an individuals benefit.
People want something safe, they can put their money in, and get good returns. Without having to worry
about losing their entire nest egg, and trust they will actually be able to retire one day. Something that
Incur a trading fee
No long term cost of more than 1% on an annual basis.
People do not want to be a creature of the casino.
People want to eliminate exposure and risk.
People do not want to gamble with their money and face a poor mathematical reality.
People do not want to a vast amount of fees for the "superior" performance they are not getting
and doesn’t exist.
The people that run funds don’t even own these funds in their own accounts.
In 2012 79% of fund managers did not beat the S&P. (February 23, 2012 @money).
They claim funds are not part of the casino (gambling), that it is investing.
The old saying "past performance does not guarantee future results".
people think the good returns from fund managers will go on forever, and good markets won't change.
But; Returns do not persist. Good markets turn to bad markets, bad markets turn to good markets.
The system is almost rigged against human psychology. Something done well in the past will do well in
the future, is categorically false and not true.
We have a society today that believes and makes us believe that retirement advisors on your side. Todays
system is set up where anybody can hold themselves out as an expert. They call themselves: Financial
Advisors, Retirement planners, Investment Advisors. The consumer can't figure out who has the expertise
to give advice.
The term Financial Advisor is a term that means almost nothing. It's someone that might be a financial
planner, could be a broker, but its really a sale's person. 85%-90% are not fiduciaries, they are just
brokers or salesman.
A fiduciary by law is a pro that is supposed to put your interest ahead of their own. Broker dealers are not
under that obligation. These people are out to maximize their sales and be loyal to the mutual fund. They
try to sell you the most profitable products.