How much money is in your 401 (k) or similar DC plan?

[OttoVonBismarck]

Historically if you pay the average 1.5-2.0% for the actively managed stock funds the average fund has only returned roughly an amount competitive with the S&P 500--when you factor in you've paid 1.5-2.0% privilege for that return you actually are worse off than having just invested in an index fund. This mostly can't be covered up these days, and is why investors are leaving a lot of the more expensive managed funds. I think the only really attractive managed funds are ones like the Windsor or Wellington that have a specific strategy that might appeal to someone willing to trade return for stability.

It's a crime that some people are at employers whose 401ks only offer expensive funds. Luckily that's one thing TSP gets right--all funds in TSP have a 0.027% expense ratio.

[Admiral Yi]

Where do they have monkeys beating people with darts and is it open to spectators?

I think some newspaper or magazine did it as an experiment a long time ago.

[Baron von Schtinkenbutt]

That's what I'm talking about.  I'm not crazy about giving away 1.5-2% of principal every year to some schmucks who get beaten regularly by monkeys with darts.

All mutual funds are that way.  It has nothing to do with 401ks.  Besides, most of my money is in index and municipal bond funds, which have extremely low expense ratios.  The money that isn't is in products doing much better than monkeys with darts.

[OttoVonBismarck]

Interestingly, hedge funds, closed to all but qualified investors and utilizing riskier activities that have the potential for much larger returns are designed around the concept of providing substantial return versus the market as a whole and in exchange the fund manager reaps massive fees. Typically a 2% flat fee and up to 20% of profits over a certain threshold. But there's evidence even hedge funds which are supposed to be one of the ways the rich get ahead of the little guy, actually perform worse than index funds.

Right now Buffett has a $1m bet going with a hedge fund management company, it's Vanguard 500 Admiral Shares against a "fund of funds" (a hedge fund that invests in hedge funds) and as of this year the Admiral Shares have returned 8% since the bet started in 2008 while the hedge fund of funds is at just under 1%.

[OttoVonBismarck]

That's what I'm talking about.  I'm not crazy about giving away 1.5-2% of principal every year to some schmucks who get beaten regularly by monkeys with darts.

All mutual funds are that way.  It has nothing to do with 401ks.  Besides, most of my money is in index and municipal bond funds, which have extremely low expense ratios.  The money that isn't is in products doing much better than monkeys with darts.

It actually is relevant to 401k discussions. If I'm buying into a fund in my taxable brokerage I can pay for the highest management fees I want, or I can park everything in ultra-low expense ratio funds like the Fidelity Spartan Funds or the Vanguard Index Funds. But in a 401k if you choose to participate (and because of employer matches you essentially "leave money on the table" if you don't) and your employer has given you say 10-12 funds with an average expense ratio of 1.5% then you don't really have very many good options.

From everything I've read about the problem, most employers have started to "get it" and offer several low cost index funds in their 401k plans, but there are still people stuck in 401k plans that offer a small number of high-fee funds.

[Baron von Schtinkenbutt]

It actually is relevant to 401k discussions. If I'm buying into a fund in my taxable brokerage I can pay for the highest management fees I want, or I can park everything in ultra-low expense ratio funds like the Fidelity Spartan Funds or the Vanguard Index Funds. But in a 401k if you choose to participate (and because of employer matches you essentially "leave money on the table" if you don't) and your employer has given you say 10-12 funds with an average expense ratio of 1.5% then you don't really have very many good options.

From everything I've read about the problem, most employers have started to "get it" and offer several low cost index funds in their 401k plans, but there are still people stuck in 401k plans that offer a small number of high-fee funds.

That's why I asked if I had been lucky, because 90% of my 401k money is in funds with an expense ratio of 0.20% or less, and my 0.84% fund is well outperforming the market at this point.  Perhaps I misunderstood Yi's response, because I took it to be an issue with 401ks in general.

[Admiral Yi]

All mutual funds are that way.  It has nothing to do with 401ks.  Besides, most of my money is in index and municipal bond funds, which have extremely low expense ratios.  The money that isn't is in products doing much better than monkeys with darts.

That's nice for you.  My 401k has S&P 500 index fund as well, but they're charging something like a point to manage it.

Out of curiosity, what are the advantages of putting your tax free 401k money in a tax free muni bond fund?

[Baron von Schtinkenbutt]

That's nice for you.  My 401k has S&P 500 index fund as well, but they're charging something like a point to manage it.

That's criminal.

Out of curiosity, what are the advantages of putting your tax free 401k money in a tax free muni bond fund?

Its insulation against downward swings, part of my asset allocation strategy.  I just checked, though, and its not all munis.  75% of my bond money is in a general fund that has muni and corporate bonds, the rest is in a TIPS fund.

[DGuller]

I must be lucky, because neither of my 401k accounts has any management fees beyond the fund expense ratios.

That's what I'm talking about.  I'm not crazy about giving away 1.5-2% of principal every year to some schmucks who get beaten regularly by monkeys with darts.

Where do you get funds with 1.5-2% expense fees? 

[Admiral Yi]

Where do you get funds with 1.5-2% expense fees? 

I don't understand the question.

[DGuller]

That's nice for you.  My 401k has S&P 500 index fund as well, but they're charging something like a point to manage it.

Somebody in your HR department must've gotten one hell of a kickback from the administrating company.  That's just criminal.

[DGuller]

Where do you get funds with 1.5-2% expense fees? 

I don't understand the question.

I did not realize that funds with 2% expense ratios still existed, much less offered for 401k.  However, after I read that your S&P 500 index fund charges 1%, I can believe that.

[Sheilbh]

Sheilbh, you understand the term "Social Security Trust Fund" is spelled out in statute. People aren't making this up. Now, functionally you have the right of it but this Trust Fund isn't something pundits made up. The theory has always been that the Social Security tax was a special payroll tax that had a "directed purpose." That differentiates it from income tax and sales tax or similar that just go into the government coffers and that are subject to regular budgeting.

Yeah but that's my view. I think FDR lied at the start and sold it as a 'trust fund' because it made the system more politically palatable. It was never a 'trust fund'. The effect then lingers on, the very talk of 'trust fund' makes it very, very difficult to reform because it sounds like such a safe and solid option. It's actually pay as you go and, yeah, it's got ringfenced funding but may as well come from general revenue and, if there was a deficit, I have no doubt it would come from general revenue.

[Baron von Schtinkenbutt]

Yi, what company manages your 401k?

[Admiral Yi]

I'd rather not say, as they are a punching bag for Captain Occupy and I own some shares.

(But it rhymes with Macy Gorgan.  )

However I don't think they're the ones picking the funds.