3 ms·

The actively managed funds in my 401k are all underperforming the market. Why pat a premium to lose money?

hibikir 11y ago
The 401k situation especially egregious: Even good companies in the financial business end up picking horrible choices for their 401k options. For instance, my current employer has an SP500 index fund in their choices... with a 0.3% fee! For comparison, Vanguard charges me 0.05% for tracking the same index, for an enormous, nonsensical profit of the fund my employer picked. And that's the cheapest one by far! Most options are active funds with 2% fees. Nobody in their right mind would use funds like that if they bought them for their own IRA, but 401Ks create a captive audience, so this terrible funds exist, just to abuse companies that aren't paying attention, or are getting something in return of letting employee money get siphoned off. So sometimes, you are paying a big premium no matter what you do.
- kasey_junk 11y ago
  Its worse than that even, my company has a Vanguard fund that I pay 0.05% in my IRA, but the 401k provider charges 0.3% and pockets the difference! Frequently, the people making 401k provider decisions (HR) are not well versed in finance or the incentives are misaligned (companies are looking for cheap vs good for their employees). This is a situation that congress could easily fix, get rid of 401k plans that are attached to employers, and instead have employers contribute directly into employee IRAs.
- maxxxxx 11y ago
  I still haven't found anyone who could explain to me why there are 401k plans. Wouldn't it be much easier if people could contribute the same amount to an IRA where they can invest as they see fit? Why should the employer be able to pick available investment options for employees? To me this looks like a subsidy to the financial industry.
  - JoeAltmaier 11y ago
    Its that, of course. And its stability in retirement savings - some folks would put it all in gold mines and internet stocks. And its political - has to be a managed plan or you can't monitor how much everybody is putting into it, balance the tax dodging so not only the top employees benefit. Like anything else, its lots of things put together and evolved.

The 401k situation especially egregious: Even good companies in the financial business end up picking horrible choices for their 401k options. For instance, my current employer has an SP500 index fund in their choices... with a 0.3% fee! For comparison, Vanguard charges me 0.05% for tracking the same index, for an enormous, nonsensical profit of the fund my employer picked. And that's the cheapest one by far! Most options are active funds with 2% fees. Nobody in their right mind would use funds like that if they bought them for their own IRA, but 401Ks create a captive audience, so this terrible funds exist, just to abuse companies that aren't paying attention, or are getting something in return of letting employee money get siphoned off. So sometimes, you are paying a big premium no matter what you do.

kasey_junk 11y ago
Its worse than that even, my company has a Vanguard fund that I pay 0.05% in my IRA, but the 401k provider charges 0.3% and pockets the difference! Frequently, the people making 401k provider decisions (HR) are not well versed in finance or the incentives are misaligned (companies are looking for cheap vs good for their employees). This is a situation that congress could easily fix, get rid of 401k plans that are attached to employers, and instead have employers contribute directly into employee IRAs.
maxxxxx 11y ago
I still haven't found anyone who could explain to me why there are 401k plans. Wouldn't it be much easier if people could contribute the same amount to an IRA where they can invest as they see fit? Why should the employer be able to pick available investment options for employees? To me this looks like a subsidy to the financial industry.
- JoeAltmaier 11y ago
  Its that, of course. And its stability in retirement savings - some folks would put it all in gold mines and internet stocks. And its political - has to be a managed plan or you can't monitor how much everybody is putting into it, balance the tax dodging so not only the top employees benefit. Like anything else, its lots of things put together and evolved.