Jack Bogle and passive investing, fighting 401(k) fees, and the looming retirement crisis

1. NPR shares a recent interview with Jack Bogle, “the George Washington of investing“:

“We live in this mythical world where we kind of believe the American way is if you try harder, you will do better — that if you pay a professional to do something, it will pay off,” Bogle says. “And these things are true — except in investing!”
 
That was Bogle’s insight: When you invest, you should own a mix of bonds and stocks. But paying investment managers to pick stocks just doesn’t work, he says. That’s because picking winners is very hard, and paying the guys in the suits is so expensive that it hobbles your ability to make money.

2. Also from NPR, a reminder to find out how much you’re paying for the mutual funds in your 401(k).

“Sixty percent of people don’t know they’re paying any fees at all in their 401(k) plan,” says Laurie Rowley, president of the nonprofit National Association of Retirement Plan Participants. NPR asked her and other experts to explain how people can get their retirement portfolios in good shape.
 
Rowley says people need to be aware that they are paying fees, and they need to find out how big those fees are. “Fees make a huge, dramatic impact on your total savings nest egg,” Rowley says.
 
A 2 percent annual fee might sound small, but it eats up half of your earnings over 35 years. Review your plan and pick just a few of the lowest cost funds, Rowley says.

In the same vein, we recently shared our data on mutual fund fees with CNBC.

3. On the rise of automated/robo financial advisors, Meb Faber writes that traditional advisors should not feel threatened but seize the opportunities they provide.

Many advisors have been wringing their hands over the fee compression – how can we compete in a world where asset allocation is a commodity?
 
The answer is – because asset allocation has always been a commodity.

Since almost every custodian and brokerage will have no cost robo technology for their advisors in the next year or two, advisors should spend as little time as possible on the asset allocation solution, and more and more on their value ads. But that is a beautiful thing! Clients would appreciate more attention, estate planning, insurance, tax management, microbrew tasting events etc etc. Not to mention it would free up advisors to spend more time on prospecting if they so choose.

4. The Economist summarizes sobering research on Americans saving for retirement. The brief version: not enough, and for many, not even close.

Unsurprisingly, the biggest problems face those with no private pension at all: 68% of these Americans are expected to fall short. Those lucky enough to be covered by defined-benefit plans—in which pensions are linked to a worker’s salary—have the least difficulty: only 20% are deemed at risk. Of those in defined-contribution (DC) plans—in which workers receive whatever pension pot they have accumulated by retirement—53% probably will not reach the replacement rate.
 
The problem is that many people simply do not save enough in a DC pension. The combined contributions of employers and employees average just 11.3% of salary. This will not generate the same level of pension as a typical defined-benefit plan. The CRR found that the average retirement assets of those aged 50-59 were just $110,000 in 2013, slightly lower than in 2010. This balance will improve over time, since DC plans are relatively new, but there is a long way to go. If pensioners take an (inflation-adjusted) 4% a year from their pot, they will need $250,000 just to generate an income of $10,000.

Dilbert, via Barry Ritholtz, has a relevant response.
 
 

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