OT - Investing 401k

Alright, I am moving our 401k for the office and had an opportunity to go through some outside investment managers portfolio which seemed pretty good overall as far as its diversification but they list the S+P 500 as their benchmark for comparison.....

Why can't any of these managers get even close to matching the return? Paying them 3% fee for substandard returns against the S+P index funds seems like criminal malpractice by every fiduciary on the planet. I get that they don't go up as high as the S+P when they have a good year, and they don't drop as much when they have a bad year, but over 15 years if the actively managed funds are at 6.66% return average versus the S+P at 10.66% return after fees..... why would anyone ever do the the actively managed fund? It is damn simple math.

Hypothetical Actively Managed Account = 3.8% fee
10 years, $10,000 investment at 6.6173% after fees = $18,979.15 balance after 10 years $36,020 after 20

S+P 500 Index Funds = .015% Fee
10 years, $10,000 investment at 10.666% ave return = $27,476.71 balance after 10 years $75,907 after 20

I am looking at losing about 40k per 10k I have invested until I retire.


Does any of that seem crazy to anyone?

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Originally Posted by Lord McBuckethead

Alright, I am moving our 401k for the office and had an opportunity to go through some outside investment managers portfolio which seemed pretty good overall as far as its diversification but they list the S+P 500 as their benchmark for comparison.....

Why can't any of these managers get even close to matching the return? Paying them 3% fee for substandard returns against the S+P index funds seems like criminal malpractice by every fiduciary on the planet. I get that they don't go up as high as the S+P when they have a good year, and they don't drop as much when they have a bad year, but over 15 years if the actively managed funds are at 6.66% return average versus the S+P at 10.66% return after fees..... why would anyone ever do the the actively managed fund? It is damn simple math.

Hypothetical Actively Managed Account = 3.8% fee
10 years, $10,000 investment at 6.6173% after fees = $18,979.15 balance after 10 years $36,020 after 20

S+P 500 Index Funds = .015% Fee
10 years, $10,000 investment at 10.666% ave return = $27,476.71 balance after 10 years $75,907 after 20

I am looking at losing about 40k per 10k I have invested until I retire.


Does any of that seem crazy to anyone?

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Low cost index funds for sure. I like the below advice except retiring at 80. That's insane.

https://www.youtube.com/watch?v=ETrZX5Ojx_E

3% fees is insane. If you see a large cap active fund with an expense ratio greater than 1%, stay far far away

I am actually a TPA that manages 401ks. Is their a reason you are using managed accounts instead of a regular record keeping system?

Also do you have an advisor for the plan?

I guess I should ask, is this your company or are you just a regular rank and file employee for a company that has a 401k?

A "lifestyle" or target-date fund would be a similar and MUCH cheaper option

Quote:

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Originally Posted by Lord McBuckethead

Alright, I am moving our 401k for the office and had an opportunity to go through some outside investment managers portfolio which seemed pretty good overall as far as its diversification but they list the S+P 500 as their benchmark for comparison.....

Why can't any of these managers get even close to matching the return? Paying them 3% fee for substandard returns against the S+P index funds seems like criminal malpractice by every fiduciary on the planet. I get that they don't go up as high as the S+P when they have a good year, and they don't drop as much when they have a bad year, but over 15 years if the actively managed funds are at 6.66% return average versus the S+P at 10.66% return after fees..... why would anyone ever do the the actively managed fund? It is damn simple math.

Hypothetical Actively Managed Account = 3.8% fee
10 years, $10,000 investment at 6.6173% after fees = $18,979.15 balance after 10 years $36,020 after 20

S+P 500 Index Funds = .015% Fee
10 years, $10,000 investment at 10.666% ave return = $27,476.71 balance after 10 years $75,907 after 20

I am looking at losing about 40k per 10k I have invested until I retire.


Does any of that seem crazy to anyone?

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I'll manage it at 2.5%.

deleted

Yea it?s gotten so easy to do yourself I have a hard time justifying paying anyone a fee. I can read a 5, 10, 15 etc year performance graph just as good as they can and pick my own funds.

I am lucky to have both a Define Benefit and a Define Contribution. My retirement is the Define Benefit (pension plan). My Define Contribution (401K) is gravy. I will be 59.5 years old this June and I plan to take a lot of my 401K and just pay off all my debt and help my son with college.

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Originally Posted by MafiaDawg

Yea it?s gotten so easy to do yourself I have a hard time justifying paying anyone a fee. I can read a 5, 10, 15 etc year performance graph just as good as they can and pick my own funds.

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I would agree with this. Also depending on your age there are funds that pay smaller returns but will not lose money. You can probably move some to these and move back later when the market is better. Again evaluate these based on age. If you are close to retirement you may not want to play the ups and downs of the market and these funds are good to be in.

It is my company, most of everyone is in a lifestyle mutual fund type set up. My 401k is actually my smallest investment pot of money and I actually want to go highly aggressive with it, but if the fund doesn?t beat the S+P over a 15 year period, why even take the risk or pay the fees associated. And this is something that my advisor brought to the table to discuss. Almost got me to do it, that is until I did the most basic math you can do, which is look at their average return net of fees over a long period of time versus the SP500.

I just find it crazy a fiduciary would even bring it to the table.

Quote:

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Originally Posted by Lord McBuckethead

Alright, I am moving our 401k for the office and had an opportunity to go through some outside investment managers portfolio which seemed pretty good overall as far as its diversification but they list the S+P 500 as their benchmark for comparison.....

Why can't any of these managers get even close to matching the return? Paying them 3% fee for substandard returns against the S+P index funds seems like criminal malpractice by every fiduciary on the planet. I get that they don't go up as high as the S+P when they have a good year, and they don't drop as much when they have a bad year, but over 15 years if the actively managed funds are at 6.66% return average versus the S+P at 10.66% return after fees..... why would anyone ever do the the actively managed fund? It is damn simple math.

Hypothetical Actively Managed Account = 3.8% fee
10 years, $10,000 investment at 6.6173% after fees = $18,979.15 balance after 10 years $36,020 after 20

S+P 500 Index Funds = .015% Fee
10 years, $10,000 investment at 10.666% ave return = $27,476.71 balance after 10 years $75,907 after 20

I am looking at losing about 40k per 10k I have invested until I retire.


Does any of that seem crazy to anyone?

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If the fee is over 0.04%, I don't pick it. Preferably half that.

Those high fees are there because sheep pay them. You're not missing anything.

Quote:

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Originally Posted by Lord McBuckethead

It is my company, most of everyone is in a lifestyle mutual fund type set up. My 401k is actually my smallest investment pot of money and I actually want to go highly aggressive with it, but if the fund doesn?t beat the S+P over a 15 year period, why even take the risk or pay the fees associated. And this is something that my advisor brought to the table to discuss. Almost got me to do it, that is until I did the most basic math you can do, which is look at their average return net of fees over a long period of time versus the SP500.

I just find it crazy a fiduciary would even bring it to the table.

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Are those active or passive lifestyle funds? I'm a CFP and a CFA...lay any questions that you need to on me.

Quote:

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Originally Posted by Jack Lambert

I am lucky to have both a Define Benefit and a Define Contribution. My retirement is the Define Benefit (pension plan). My Define Contribution (401K) is gravy. I will be 59.5 years old this June and I plan to take a lot of my 401K and just pay off all my debt and help my son with college.

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Yes you are. Most companies did away with Defined Benefit years ago.

Most all of mine is invested through fisher. I’ve never paid 3 percent. Not even close

Quote:

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Originally Posted by Lord McBuckethead

Alright, I am moving our 401k for the office and had an opportunity to go through some outside investment managers portfolio which seemed pretty good overall as far as its diversification but they list the S+P 500 as their benchmark for comparison.....

Why can't any of these managers get even close to matching the return? Paying them 3% fee for substandard returns against the S+P index funds seems like criminal malpractice by every fiduciary on the planet. I get that they don't go up as high as the S+P when they have a good year, and they don't drop as much when they have a bad year, but over 15 years if the actively managed funds are at 6.66% return average versus the S+P at 10.66% return after fees..... why would anyone ever do the the actively managed fund? It is damn simple math.

Hypothetical Actively Managed Account = 3.8% fee
10 years, $10,000 investment at 6.6173% after fees = $18,979.15 balance after 10 years $36,020 after 20

S+P 500 Index Funds = .015% Fee
10 years, $10,000 investment at 10.666% ave return = $27,476.71 balance after 10 years $75,907 after 20

I am looking at losing about 40k per 10k I have invested until I retire.


Does any of that seem crazy to anyone?

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Index all the way. Many large corporations are now only offering that. The time of Peter Lynch is over, we now know that Mutual Funds are just monkeys throwing darts and basically following an index. The super talented guys are probably proprietary traders. They would not want to allocate capital under mutual fund regulations.

If Trump wins the election, add 20% physical gold and silver to your portfolio. If Biden wins, buy as much physical gold and silver possible.

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Originally Posted by EdwardDrayton

Yes you are. Most companies did away with Defined Benefit years ago.

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Be cautious of relying primarily on a Pension. No matter how big or strong the entity it can disappear overnight.