Look, I know it’s not nice but sometimes we just need to be told how it is. So, please, don’t be a loser! I spend a few hours today looking at investment choices of college employees (many of them professors) at a large public university. In a matter of hours, I went from sad-to depressed-to mad. My co-author and I are trying to understand how university employees decide on investment choices in their pension and 403(b) accounts. And let’s just say that if I had these peoples’ names and phone numbers (I don’t; the IRB frowns upon that), I would call each of them and inform them I can find them gazillions of dollars in their 403(b)s in a matter of seconds.
Here is what I mean:
- A whole bunch of people are invested in a money market account earrings about 0.01%.
- A whole bunch of people chose some basic stock/bond fund (think of something like the S&P 500) that is about TWENTY TWO times more expensive than another option that is pretty much no different. Not one, not 5, but 22 times.
- A whole bunch of people went down the line and split their money into a million things, 5% each, even when it makes absolutely no sense to do that. Why, people, why?
These people are smart, really smart. Half of them have Ph.Ds. I am sure they are not trying to sabotage themselves. It probably comes down to the fact that they don’t know any better because they never took the time to think about it, look into it, and figure it out. I am sure every single one of them can spend a few hours and make themselves a few thousand dollars, but they choose not to.
How much does it matter though? Is this really such a big deal as I make it sound? Here is my personal example, you can adjust yours from there. I assume I will retire in 35 years, invest my whole 403(b) of $18k per year in the Vanguard S&P 500 index at the 0.05% cost and get an average return of 8% per year. This is actually one of the options on the 403(b) menu we were looking at today. If I do all this and the stars align properly, I will have a little over $3 million in the end. Doing the exact same thing, but putting the money into another fund that charges 1.11% and does pretty much the same thing will result in a value of about $2.4 million. We are not talking about $5, people. We are talking about HALF A MILLION DOLLARS difference (actually, more like $640k). How big of a decision is it? Pretty big, if you ask me. I don’t have $640k rolling around.
The sad part is that you can pay someone about $500 and in 1 hour, your 403(b) or your 401(k) will reallocated, fixed, patched and you will be on your way to a better retirement with not much effort. Is $500 worth $600k? I am pretty sure it is.
So now, please, don’t be a loser. If you are not ready to spill your 401(k) secrets to an outsider, go and sign up for the 5 emails I wrote that will try to set you on the right path on your own. You can do it right here: http://attainablewealthfp.com/ Just put your name in that box and I will try to walk you through the decision steps. And if afterwards, you decide that you are more confused than you were before, find someone who can help you out. I know about 150 people who can do this for you for under $500, myself included.