At Last, a Proven Solution to Fortify Your Company's 401(k) PlanJuly 1, 2011
Do you own a closely held business, one with a self-directed 401(k) plan where each employee selects how to invest his funds, typically selecting among a family of mutual funds offered by the plan sponsor? If so, learn how not to lose your retirement funds to Wall Street and, more importantly, how to improve the economic health of the plan.
I am on the warpath to change a system that has long been broken; not delivered on its promises; and skimmed billions of dollars in unearned fees from 401(k) plans. Let’s start by dealing with the “buy-and-hold” myth touted by many self-proclaimed Wall Street gurus to investors. Following is a quote from an article titled, “A 10-Year Scam Called the Stock Market,” by Michael Lombardi.
“What a decade it’s been,” writes Lombardi…“The stock market is at the same level (nearly) today that it was 10 years ago despite interest rates falling like a rock since 2001. The majority of Americans who buy mutual funds in their retirement funds with the hope of seeing that money grow through the years have followed the worst possible strategy. Buy and hold for the long term—I’m not sure who made up that motto.”
Worse yet, when you factor in inflation, instead of your retirement funds standing still, the intrinsic value of the funds has gone down.
Now let’s dig a bit further into mutual funds. According to an article titled, “The Market Data Against Fundamentals,” by Douglas Davenport, “an annualized return from 2000 through 2008 for large-cap U.S. stocks show a market return of –0.27 percent…and the average mutual-fund return for the same period was a –3.25 percent.” Much of this loss is directly attributable to mutual-fund expenses.
Mutual funds are an expensive investment choice. Except in a long-term bull market, even the fund managers do not make money. Yet the current, crazy 401(k) system dictates that each 401(k) participant makes the investment decisions for his own account, regardless of their investment training and experience. A detailed analysis of how the typical self-directed 401(k) plan impacts the plan participants is nothing short of a national scandal. Each participant’s account gets charged two management fees: one by the plan sponsor and a second by the various mutual funds selected by participants. A rising market hides the sins of the fees. But a bear market or go-nowhere market (such as that of the past 10 years) causes the continuing fees to only exasperate the pain of investment losses suffered by plan participants.
It’s time for a change, in order to avoid employer liability, increase earnings to an acceptable rate of return, and still minimize risk. Here’s how.