If you’d like to put away money for your retirement, this 52 minute video by FRONTLINE is a good first step.
Perhaps the biggest takeaway from this video is from Jack Bogle, the founder of Vanguard. At 33:15 in, Bogle says it is better to invest in broadly diversified index funds instead of actively managed funds.
You invest in a fund that closely resembles the market, like the S&P 500. You hold onto it. You don’t trade. It costs about 1% a year to own. You ride the market up and down. Otherwise, he said maybe you have a 1% chance to beat the market.
At 36:20 – Jason Zweig of Wall Street Journal says the “Ultimate dirty secret” is that a lot of people who run other fund companies own low cost, not actively managed index funds. Those are the kind of funds Jack Bogle suggests.
Helaine Olen, Author of Pound Foolish chimes in at 37:40 with what makes sense to me. It’s not that the fund managers are trying to hustle you. She said that active managers selling funds convince themselves that their fund will beat the market.
Click here to see the entire episode. Here is Frontline’s trailer:
Here are some other points that I found interesting
@5:15 – Brooks Hamilton says most people think you need 10-15 times you annual salary to live comfortably in retirement. If you make $100K you need to have saved $1.5 Million.
@8:15 – In 1970, 42% of employees had a pension. Pension system became expensive.
@20:00 – Robert Hiltonsmith Masters in Economics guy noticed his 401(k) portfolio wasn’t going up. The market was but his portfolio wasn’t moving much. He delved in and noticed the EXP Ratio. Expense ratios were killing his growth.
@22:30 – Actively managed account has fees 1.3% average to about 5%. It adds up.
@23:50 Jack Bogle of Vanguard talked about how compounding costs of actively managed funds overwhelm the compounding savings. If earning 7%, paying the 2% fee to manage the account is killer. Over 50 years, You’d lose 2/3 (63%) of what you would have earned.
@26:48 – Compounding calculator
@27:00 – 100K – 2% compounded annually after 50 years, you will have lost $63K. Keep in mind that this calculation does not have any increase in value, unlike how most funds would over time.
@30:00 – some brokers get a taste for putting a new fund on company menu. The funds are getting fees, now the brokers want a taste! We pay for that “revenue sharing”.
@ 33:15 – Bogle says to invest in broadly diversified index funds because they are less expensive because no active manager. Long term, Low fees. Don’t trade. 1% a year to own. i.e. S&P 500. For better or worse. He said You have 1% chance to beat the market.
@36:20 – Jason Zweig of WSJ: “Ultimate dirty secret”: a lot of people who run other fund companies own index funds.
@37:40 – Helaine Olen, Author of Pound Foolish said that those active managers selling funds convince themselves that their fund will beat the market.
@40:45 – 85% of financial advisors are not Fiduciaries. They are loyal to what they sell, not necessarily in your best interest. Ask them: Would you be willing to sign a fiduciary agreement saying you will act in my best interest on all things at all times?
@43:10 – are you willing to sign a pledge that you will act in my best interest???
@44:30 – Fiduciary Rule put forward in 2010. All financial advisors must put their clients’ well-being ahead of their own. It was shot down.