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  1. #1

    The Retirement Gamble

    I like to go thru the various forum conversations and may or may not join in.
    Yesterday, I found a conversation in the Personal Finance forum started by M*_AdamZ asking us when we prefer stocks vs stock funds. On the fourth page of the conversation, rgarneau (6th down from the top) says: "... I watched a PBS Frontline presentation called "The Retirement Gamble", which is viewable online if you google it, and that helped confirm some of my own suspicions about mutual funds." Interestingly enough, rgarneau eschews MFs for individual stocks.
    (here's a link to the 52.10-minute video)
    I wanted to ask rgarneau his opinion of specific areas of the video, but felt my Qs were off-topic in the above-referenced conversation. I also did not want to drag rgarneau kicking and screaming into MY conversation unless he/she wanted to.
    At first, I found The Retirement Gamble interesting then it gradually became excessively annoying. So much so, about midway I had to force myself to watch it to the end:

    1. The math is very fuzzy and logic is never fully implemented. Example: In calculating the expenses charged by fund management over a 50-year period with an average return of 7%/year with 2% of expenses, Bogle claims a full 1/3 of the investment's returns are eroded by the expenses. The PBS correspondent, Martin Smith, unwittingly failed to properly follow Bogle's reasoning and/or calculations. Instead, he used a compounding calculator online, input $100,000 as the initial investment, placed -2% as the "return" (fund expense/year) for a 50-year timeframe. What does he conclude? $100,000 - $63,242.73 expenses = $36,767.27 left in your account. I watched this section of the video several times and EVERY time the words used left me with the impression that you have ONLY $36,767.27 total left in your account. Hello! Excuse me? Has this guy never bothered to follow his portfolio's performance? Where are the distributions? Were they reinvested or taken as cash? Either way, they're in the retirement account somewhere. The price of the original shares purchased by the $100,000 investment would not stay static, either.
    2. I did not like the "interviews" with fund management companies or other financial professionals because it appeared to me that the questions and responses were cherry-picked for the ones least flattering to anyone but the PBS correspondent.
    3. It is especially laughable to me when Martin Smith walks us through *his* business and *his* retirement plan HE established for himself and his employees. HE chose the plan, chose his retirement plan administrator and the investments offered to HIS employees. *He* has the control: if he doesn't like what they have, then he needs to change the plan or move it to a new custodian.
    4. The premise that is not-so-subtly shoved down our throats is that the individual investor is NOT responsible in any way for managing OR understanding their investments. No solutions were proposed how to resolve this issue, but the first one I would *require* is that employees have to take a series of introductory courses to understand the basics of investing before they can make any decisions about their retirement plans. It's not a perfect solution, but they would at least understand what a mutual fund, stock, bond, annuity, expense ratio or prepayment penalty is. That's half the battle. The rest is earned through experience.

    While I do NOT question the existence of fees and the need to minimize them, I found the whole video terribly biased, ignorant and unhelpful. I felt that Martin Smith wanted to shine a negative light on investment firms and fund custodians.
    I was severely disappointed in The Retirement Gamble because it made absolutely no effort to tackle the real issue: how employers and retirement plan administrators can help employees understand investing and their investment choices.
    I would love it if YOU all would watch the video and see if you agree with me.

  2. #2
    I've often felt that employers with 401K plans would do their employees a great service by providing a "primer" on investment basics. It could take the form of a learning module accessible from the company website and required viewing before they could access investment options.
    The ignorance of employees is breathtaking. And these are NOT stupid people either. They just have no inclination to learn anything about managing their personal finances.
    I can't tell you how many times I've spoken to a coworker who was 100% CONVINCED that the company's 401K funds don't have administration costs (expense ratios) or even if they did know that, believed they were less expensive than what was available via the Brokeragelink option.
    And of course a great number of employees don't understand that there is risk of action (investing) BUT ALSO risk of inaction; and inaction, by far, is the worst option over the long-term of a career. So you end up with peeps placing all their "monies" in a Stable Value fund for 25-30 years. Argh.

  3. #3
    However, the one most to blame is the US government.
    When my employer started a 401k plan in 2001, she was severely limited by Uncle Sam's retirement plan rules and regulations in anything to do with investing. The premise was that if an employer discussed anything financial or provided any investing information or expressed an opinion about a specific employee's investing (or NOT investing and simply holding cash), that employer would be held fully responsible for any losses in the employee's accounts. Perhaps it was in reaction to the Y2K busting wide open. Regardless, she was limited to introducing her employees to the plan administrator and simply making the profit-sharing contributions to our accounts. It was the plan administrator's job to educate us. I didn't need it, but the others did. Then our broker left and they were on their own. My employer periodically told us as a group that we needed to call the 401k custodian and request a review, but that is all she could do. I know for a fact that NONE of them followed through.
    Unless my employer was willing to be held 100% responsible for the performance of an employee's 401k, she could not even talk privately with an employee and tell them they can't just hold cash, they have to invest it in something.
    Around 2008 or so, my employer was suddenly told by Uncle Sam that she was responsible for making sure her employees were regularly presented with the opportunity to manage their investments. She was now responsible for an employee failing to invest their money. I find that ludicrous, don't you?
    Worse than that, one of my coworkers was 100% in cash. My employer held a general meeting and told ALL of us, you must invest your money; one of you is just holding cash. She then presented us to our 401k custodian's rep to review our accounts and help us with our investments.
    In a better world, I think all adults should be required to take an introductory course before they can start investing. Then at least annually, they should be required to take CE courses on different types of investments. But that's a pipe dream, isn't it?!


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