馃攳
A WARNING To All 401k Investors! - YouTube
Channel: Jarrad Morrow
[0]
there's a huge problem with the 401ks
[2]
our employers offer us that's most
[4]
likely affecting 90 of you watching this
[7]
but since you only have access to the
[8]
investment options in your 401k it might
[11]
not be as obvious of an issue in this
[13]
video i'm going to uncover an enormous
[15]
flaw that i discovered while reviewing
[17]
my 401k that's most likely affecting you
[20]
and then i'll show you how to avoid the
[22]
problem altogether the result of not
[24]
being aware of this sort of thing could
[25]
come in the form of forcing you to have
[27]
to retire a few years later than you
[29]
actually have to unfortunately my
[31]
ex-employer goodyear is going to be the
[33]
poster child for what's wrong with 401ks
[36]
across the united states yes i'm going
[38]
to call out goodyear specifically
[40]
because i think that what they're doing
[41]
is wrong plus i don't work for him any
[43]
longer so what are they gonna do fire me
[44]
i need to call something out real quick
[46]
about goodyear so that no one gets my
[47]
intentions twisted we need to separate
[49]
what they're doing with their 401k from
[51]
them as a business and employer i have
[53]
nothing but great things to say about
[55]
working for them from an employee
[56]
perspective i worked with some pretty
[58]
awesome people over there and they
[59]
treated me very very well i also plan to
[62]
be a lifelong customer of theirs because
[64]
after working behind the scenes i can
[66]
confidently say that they have some of
[67]
the best tires on the market what i do
[69]
think they and other employers need to
[71]
be criticized for is the poor position
[73]
they're putting their employees in when
[75]
it comes to investing for their future
[77]
the reason i can confidently say that
[78]
this could be impacting 90 of you is
[81]
because i looked at my 401k investment
[83]
options and reached out to 9 other
[85]
individuals to get a list of the options
[87]
their employers were offering them as
[89]
well i'll admit that it's not the
[90]
largest sample size but it's enough to
[92]
notice that it wasn't just an issue
[94]
within my 401k from there i combined all
[97]
the data into a spreadsheet to look for
[99]
trends and boy was i extremely
[101]
disappointed to be fair to the people
[103]
who shared this info with me privately
[105]
i'm going to avoid calling out who they
[107]
work for because i don't want to put any
[108]
of them in a difficult position with
[110]
their employer to understand the glaring
[112]
issue you first need to understand how
[114]
the fees work for the investment options
[116]
within your 401k you'd be surprised how
[118]
many people don't actually understand
[120]
this and it's not really their fault
[122]
every fund offered to you has a specific
[124]
expense associated with it which is
[126]
usually referred to as an expense ratio
[128]
this expense ratio is paid to the
[130]
company who manages that particular fund
[132]
now there can be many different funds
[134]
managed by many different companies
[136]
within a 401k for example goodyear
[138]
offers an international fund managed by
[141]
jpmorgan where they charge 0.57 percent
[144]
when you own that investment this is
[145]
considered an actively managed fund
[148]
where the fund manager is going out and
[150]
actively picking stocks to buy and sell
[152]
on a regular basis you can tell this is
[154]
an actively managed fund by either doing
[156]
a quick google search to read about
[157]
their investment process or it's pretty
[159]
easy to spot based on the high point
[161]
five seven percent expense that they're
[163]
charging i know point five seven percent
[165]
doesn't seem like a lot but i'll do some
[167]
quick math in a minute to show you the
[168]
dollar amount it costs to own this fund
[171]
on the other hand someone shared with me
[172]
an international index within their 401k
[175]
that's managed by state street where the
[177]
cost to own that fund is point zero
[179]
seven percent because the name says
[181]
index and the expense is very low at
[183]
point zero seven percent we can tell
[185]
that this fund is passively managed in
[187]
this case there is a fund manager who
[189]
runs this index fund but they're only
[191]
buying and selling stocks based on the
[193]
underlying index and not actively trying
[196]
to pick stocks on their own like an
[197]
actively managed fund would let's
[199]
compare the actively managed fund with
[201]
the passively managed fund to see the
[203]
true cost in dollars if we invested ten
[206]
thousand dollars into the actively
[207]
managed international fund offered by jp
[210]
morgan with a cost of point five seven
[212]
percent then at an average annual return
[215]
of seven percent over thirty years you'd
[217]
pay a total of eleven thousand two
[219]
hundred and seventy dollars in fees if
[221]
you invested that same ten thousand
[223]
dollars into something like the
[224]
passively managed international index
[227]
offered by state street with a cost of
[229]
point zero seven percent then after
[231]
thirty years you'd pay a total of one
[233]
thousand six hundred and twenty six
[235]
dollars in fees the actively managed
[237]
fund is seven times more expensive but i
[239]
need to call out that just because
[240]
something is lower cost doesn't always
[242]
mean that it's a better choice the cost
[244]
is only one data point that we can use
[246]
to understand if we should be investing
[248]
in an actively managed fund or a
[250]
passively managed index fund so then i
[252]
wonder if there's a way to find out how
[254]
actively managed funds perform compared
[257]
to a low-cost index fund that was a
[259]
stupid question since i know the answer
[261]
because the good news is that there is
[262]
the s p dow jones indices releases a
[265]
yearly score card that tells us the
[267]
percent of actively managed funds that
[270]
underperform their underlying index over
[272]
a three-year period 66 percent of
[275]
actively managed international funds
[277]
underperformed over a 10-year period 80
[279]
percent underperformed and over a
[281]
20-year period
[282]
91 of actively managed funds
[285]
underperform a basic low-cost passively
[288]
managed index fund are you starting to
[290]
notice a trend the further in time that
[292]
we go out the more likely it is that an
[294]
actively managed fund will underperform
[297]
a basic low-cost index fund because it's
[300]
nearly impossible to do so this is also
[302]
the case with total u.s stock index
[304]
funds where 88 percent of active funds
[307]
underperform same with large cap funds
[309]
where 94 percent of actively managed
[312]
funds underperform mid-cap funds were 91
[315]
of actively managed funds underperformed
[318]
and of course small cap funds were 94 of
[321]
actively managed funds underperformed
[323]
the moral of the story is that you're
[325]
better off investing in a low-cost
[327]
passively managed fund over any sort of
[330]
actively managed fund every single time
[333]
without question this brings us to the
[334]
first issue in a lot of the 401ks that i
[337]
reviewed there are more actively managed
[340]
funds than there are low-cost passively
[342]
managed index funds luckily every 401k
[345]
has multiple target date funds which are
[347]
usually low cost but i'm basically
[349]
considering all of them as one within
[351]
each 401k because they're essentially
[353]
the same thing just with different dates
[355]
this means that if your 401k investment
[358]
options look anything like goodyear's
[360]
then you have three passively managed
[362]
funds and six actively manage investment
[365]
funds to choose from i don't know about
[366]
you but something just seems wrong about
[368]
that we'll cover what you can do about
[370]
it in just a minute please do my dog
[371]
molly a huge favor and hit that thumbs
[374]
up button because she would love you
[376]
long time our employers choose the
[378]
investments that are available for us to
[380]
invest in so it's not like this sort of
[382]
thing can't be avoided especially with
[383]
huge companies like a goodyear that
[385]
employ around 75 000 people having an
[388]
outsized amount of actively managed
[390]
funds makes it absolutely impossible to
[392]
build a low-cost diversified portfolio
[395]
within a lot of 401ks even though the
[397]
data is absolutely conclusive that those
[400]
expensive funds just do not perform well
[402]
over the long term by diversified i mean
[404]
something like a solid two or three fund
[407]
i made a whole video on the benefits of
[409]
a 3fund portfolio which i'll link up
[411]
down in the description and at the end
[413]
of this video if you want to check it
[415]
out it's essentially where you only
[416]
invest in three asset classes to keep
[418]
costs low and to diversify yourself as
[421]
well to be clear i'm not saying that
[422]
there should be zero actively managed
[424]
funds offered within a 401k i am all for
[428]
a free market and competition so if jp
[430]
morgan wants to offer an expensive
[432]
actively managed international fund then
[435]
that is their right to do so but at the
[436]
very least for every expensive actively
[439]
managed fund offered within a specific
[441]
asset class our employers should offer
[443]
an equivalent low-cost index fund option
[446]
as well by offering less low-cost
[448]
options it forces people like you and me
[450]
to be less diversified in our
[452]
investments which can open the door to
[454]
even more investment risk in the case of
[456]
goodyear's 401k offerings if you want to
[458]
keep costs low then you're essentially
[461]
forced to either invest in only an s p
[463]
500 index fund or a target date fund and
[466]
i made a whole video about the flaws
[468]
associated with a target date fund which
[470]
i'll link up down in the description and
[473]
at the end of this video as well the
[474]
next problem is that your hands are tied
[476]
with your current 401k to where you are
[478]
just stuck there you can't opt out and
[480]
move to a different 401k until you quit
[482]
that job it is the only game in town so
[484]
you can only invest in what's put in
[486]
front of you which is absolutely messed
[488]
up kind of reminds me of uh i don't know
[490]
what's the word monopoly which is pretty
[492]
illegal in the united states but of
[494]
course our employers can get away with
[496]
it within our 401 case okay enough
[497]
negative stuff let's go over some
[499]
solutions i have to this problem then
[501]
i'll share a handful of the worst funds
[503]
within the 401ks that i reviewed because
[506]
personally i think that a few of these
[508]
fun companies just need called out the
[510]
first solution might be a long shot but
[512]
it's worth a try an option would be to
[514]
reach out to your hr department or
[515]
benefits department to see if there's
[517]
any way for them to add a low-cost
[520]
passively managed index fund for each
[522]
investment class if you do this and need
[524]
some help this is exactly what you put
[526]
in front of them the funds that you'd
[528]
want are an s p 500 index or total stock
[531]
market index that are comparable to the
[533]
ticker symbols vtsax
[536]
and
[537]
vfiax you'd also want a total
[539]
international stock index fund that is
[541]
comparable to
[543]
vtiax and you'd want a total bond market
[546]
index fund that is comparable to
[548]
vbtlx some additional nice-to-have
[550]
options would be a reit mid-cap and
[553]
small-cap index fund as well at the very
[555]
least try to focus on the first three
[557]
that i gave you the key is for them to
[558]
give you options where the expense ratio
[561]
is no more than point one zero percent
[563]
at the most any more than that and
[564]
you're just getting ripped off the
[566]
reason you might not have these low cost
[567]
options available to you right now is
[569]
because your employer may have just been
[571]
sold really really hard on the current
[573]
options by some scummy salesperson in
[576]
the financial industry another reason is
[578]
that leadership within the company might
[579]
just be very uneducated on the topic but
[582]
i think at some point our employers need
[583]
to be held to a higher standard with
[585]
this and we can't just let them claim oh
[587]
my goodness i had no idea yeah i'm gonna
[590]
call bull on that one there could also
[591]
be some behind the scenes dealings where
[594]
someone somewhere is getting a kickback
[596]
to put these specific investment
[597]
products in front of you is having
[599]
horrible investment options within your
[601]
401k illegal it can be but as long as
[604]
they offer a few very low cost passively
[607]
managed funds they can probably get away
[609]
with it i think that's why we see so
[610]
many target date funds within a 401k
[613]
because i have a feeling that each one
[614]
of those counts as a quote-unquote
[616]
low-cost fund at the very least it's
[619]
immoral and unethical for your employer
[621]
to offer high fees within a 401k and
[624]
very few low-cost options which is funny
[626]
because i don't know about you but back
[628]
when i worked at goodyear we had to do
[630]
ethics training every single year maybe
[632]
leadership within the company should
[634]
take some ethics training before
[635]
choosing the investment options within
[637]
their employees 401ks there's jared
[639]
talking crazy again the second thing
[641]
that you can do to avoid investing in
[643]
high fee actively managed funds is to
[646]
only hold the low cost options within
[648]
your 401k and anything else you want to
[651]
invest in can be put into other
[652]
retirement accounts one thing i noticed
[654]
across the board is that all of the
[656]
401ks i reviewed had a low cost s p 500
[659]
index which is great but going back to
[661]
the whole refund portfolio talk if you
[663]
wanted to invest in international or
[665]
bonds as well then the high fee options
[668]
were all that you had available to you
[669]
in that 401k if this was the case and
[671]
you still wanted to invest in these
[673]
three types of assets then you could
[675]
hold all of your s p 500 allocation
[677]
within the 401k because it had the
[679]
lowest cost then you could use your
[681]
other retirement accounts like an ira or
[684]
if your spouse has a 401k with low cost
[686]
options to invest in an international
[689]
and or bond index for me that's what i'm
[691]
going to do since goodyear's 401k
[693]
investment options are absolutely trash
[696]
i'm going to invest all of the money
[697]
within that account in the s p 500 index
[700]
with my international index fund
[702]
investment i'm going to hold some of
[704]
that in my roth ira as well as another
[706]
401k with another previous employer
[709]
where they offer a low cost option as
[711]
well one of the grossest investments
[713]
that i saw within a 401k was the target
[716]
date fund that jp morgan was offering
[718]
one employer to give you context the
[720]
average cost of a vanguard target date
[722]
fund within the 401ks that i came across
[725]
were
[725]
.045 percent this would equate to a cost
[728]
of a little over a thousand dollars over
[731]
thirty years at a seven percent return
[733]
jp morgan was offering a target date
[736]
fund for point eight eight percent which
[739]
is absolutely mind-blowing that is over
[742]
19 times more expensive than the
[744]
vanguard option and it would cost the
[746]
investor sixteen thousand seven hundred
[749]
dollars versus one thousand dollars i'm
[751]
reviewing this video that you're
[753]
watching right now and just seeing those
[754]
numbers again of how much jpmorgan is
[757]
charging for a stinking target date fund
[760]
is disgusting they just messed up that
[762]
they can actually get away with that and
[764]
on top of that that our employers
[766]
actually put this trash in our 401 case
[769]
for us to eventu or potentially invest
[771]
in
[772]
it's not right all right back to the
[774]
video templeton global was charging 0.69
[777]
for a bond fund which would be 17 times
[780]
more expensive for a cost of 13
[783]
400
[784]
jpmorgan was charging 0.57
[787]
for an international fund which is with
[789]
goodyear which would be seven times more
[791]
expensive for a cost of over eleven
[794]
thousand dollars fidelity was charging
[796]
point six nine percent for a large cap
[798]
fund which would be over 21 times more
[801]
expensive for a cost of 16 300 i could
[805]
go on and on with more examples but i'm
[807]
gonna stop there don't forget to hit
[808]
that thumbs up button please check out
[810]
the description down below to join the
[811]
private financial independence group and
[813]
get some free stocks as well i'll see in
[816]
the next one friends done
Most Recent Videos:
You can go back to the homepage right here: Homepage