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Posts Tagged ‘401k’
Monday, July 26th, 2010 by Chad Griffeth, AIF
 Our friend Carl Richards, writing for the NYTimes.com Bucks blog, does an excellent job of speaking to the ‘waiting-until-I-get-back-to-even’ mistake many investors make. It’s called anchoring. Essentially, we create a value in our mind for an investment we want to receive before selling. The following are some excellent examples of how this can hurt you more than simply cutting your losses:
One of the more common behavioral mistakes we make when it comes to investment decisions is the tendency to anchor to a certain value or price. When we focus on, or anchor to, a price, it can lead to costly blunders. Here are a few examples:
1. You pay $800,000 for your home, and a few years later you need to sell it. We have a tendency to feel like we should at least be able to get what we paid for it. So you insist upon listing it for $800,000, even though the market value is less than that. You pass on offers around $775,000 and then ride the market all the way down to the point where you are just hoping to get $650,000 a year later. Now that first offer looks like a dream.
The reality is the market doesn’t care what you paid for you house. It doesn’t care how much you put in to it or what it cost you to landscape. All that matters is what it is worth today.
2. You buy a stock for $50 a share, and six months later it is $30. You decide that you really shouldn’t own it anymore but you want to wait until you “get back to even” before you sell. This idea of holding on to an investment that is no longer appropriate, or may have been a mistake in the first place, until you get back to even makes no sense. The fact that you paid $50 has no bearing whatsoever on what you should do now.
In fact, I think it is fair to say that getting back to even is never a good reason to hold on to an investment. If you find yourself saying that, it’s time to re-evaluate.
3. Your portfolio was worth $500,000 at the top of the tech bubble in early 2000, and you still think about that value each time you open your statement and see that it’s worth less than that. You just want to get back to your high-water mark of $500,000.
This may not have any impact on your decisions, but it sure is affecting your life. I know people like this, still holding on to a value in the past. It is like that guy next door who is still telling stories of his glory days in high school football.
The past is the past. All that matters now is making the correct decision for today.
Read the Article at NYTimes.com
Tags: 401k, 401k investor help, Carl Richards, investment behavior, retirement
Posted in 401k help, investment behavior | No Comments »
Monday, July 26th, 2010 by Chad Griffeth, AIF
 The new 408(b)2 disclosure regs have been long awaited, and present a great opportunity for companies to better understand and benchmark the fees associated with their 401(k) provider. Additionally, it will be require 401(k) service providers to better articulate value in light of the fees they charge. ERISA requires plan fiduciaries to review the fee structure of, and I paraphrase, “reasonable fees for reasonable service.” What is reasonable? That is for plan fiduciaries to determine via the value proposition delivered by 401(k) service providers, which includes recordkeepers, TPAs, custodians, advisors and yes, participant advice providers.
While the impact of this disclosure does not directly impact us as a 401(k) participant advice provider since we have been transparent and conflict-free from the start, there are a lot of benefits for the companies and employees we serve. Here are a few:
- Service Providers Must Disclose Whether They are Fiduciaries – There is so much confusion over this issue, it is great to see the regulations require this so to clarify for plan sponsors who is and who is not acting as a fiduciary. Most plan fiduciaries have been confused by this over the proliferation of the terms used by service providers such as fiduciary, co-fiduciary, fiduciary warrant and especially advice, which automatically makes someone a fiduciary. Per InvestmentNews.com:
“Along with requiring bundled service providers to break out costs of their record-keeping services, the new regulation also requires providers to disclose whether they are acting as fiduciaries to plans.”
- Disclosure Simplifies Plan Reviews and Benchmarking – Understanding value will be much easier if there is some standardization and definition of what services are to be included under each term. Making an apples to apples comparison is critical for making a large decision on a large purchase, such as a 401(k) service provider.
- Independence and Conflicts to be Better Articulated – Understanding the inherent conflicts of interest with various service providers. Per InvestmentNews.com,
“Under the rule, consultants — and many plan service providers — will be required to reveal to DB and DC plan sponsors hitherto undisclosed compensation they are receiving, including any revenue sharing or finder’s fees.”
- Transparency Improves Clarity – It is obvious, but understanding what plans are paying for various providers has been extremely difficult to understand for many companies. Including us. We do not do plan-level consulting work, but when we are working on a plan that has a fiduciary plan consultant, the quality of the plan has a distinctly different flavor than the plans that do not. Service and value are the at the crux of the conversation, which ultimately resonate in greater outcomes for participants. Per InvestmentNews.com,
Alison Borland, retirement strategy leader at unbundled provider Hewitt Associates, Lincolnshire, Ill., said: “The regulations will put different types of service providers, including bundled and unbundled providers, on a level playing field.”
“Ultimately that means better transparency, more negotiating power and lower total costs for plan sponsors and plan participants.”
Cheaper is not always better. Receiving the best value for a reasonable cost is all this disclosure regulation is aiming at in our humble opinion, which is great for plan fiduciaries and their participants, which includes themselves.
Tags: 401k, 401k advice, 401k advice regulation, 401k fiduciary, fiduciary
Posted in 401k advice, 401k fiduciary, Advice Regulations, conflicts of interest, fiduciary, fiduciary education, independent fiduciary | 5 Comments »
Tuesday, July 6th, 2010 by Chad Griffeth, AIF
 The following are some highlights discussed in the July ‘10 Research Newsletter from John Whaley, CFA, AIF, Director of the BeManaged Research Department.
- Second Quarter Ends with a Thud
- Another Review of Long-Term Market Value
- A Picture of Risk
Download the Newsletter
Tags: 401k, 401k investor help, BeManaged Newsletter, investment behavior, John Whaley, personal finance, retirement
Posted in 401k help, Asset Allocation, BeManaged, investing, investment behavior, investment education, retirement | No Comments »
Tuesday, June 1st, 2010 by Chad Griffeth, AIF
The following are some of the highlights discussed in the June ‘10 Research Newsletter from John Whaley, CFA, AIF, Director of the BeManaged Research Department.
- Government Finance Bubbles Hit World Equity Markets
- Why Invest in Money Markets and Get Zero Return?
- 3 Events That Could Drive Markets Higher in 2010
Download the Newsletter
Tags: 401k, 401k investor help, BeManaged, investment behavior, John Whaley, personal finance, retirement
Posted in 401k help, BeManaged, investing, investment behavior, investment education, retirement | No Comments »
Monday, May 24th, 2010 by Chad Griffeth, AIF
 Carl Richard’s latest article illustrates a very interesting perspective on investing. The following sums it up pretty well,
We’re quick to focus on the reward but fail to appreciate the consequences of our choice. If an investment performs well, we like to think, “I picked a winner.” If it’s the reverse, and the investment fails, it’s someone else’s fault.
This reminds me of the time that I was mowing the lawn as a child and I hit a sprinkler head with the mower. I remember running inside to tell my mom that the lawnmower had hit the sprinkler head. She patiently taught me that lawnmowers don’t hit sprinklers, 10-year-old children do.
We do the same thing when it comes to investing. If we haven’t done our research (figured out where the sprinklers are) and we behave poorly (run over the sprinklers), we’re not going to like the results.
And we can’t blame the investment for our decisions. At some point, we must accept responsibility. Otherwise we’ll keep making the same mistake since we’re blaming the investment rather than accepting responsibility for our choices. And if that’s the case, we’d be better off in a certificate of deposit.
Read the Full Article at the NYTimes Bucks Blog
Tags: 401k, 401k investor help, Carl Richards, investment behavior, personal finance, retirement
Posted in 401k help, Asset Allocation, investing, investment behavior, investment education, retirement | No Comments »
Tuesday, May 11th, 2010 by Chad Griffeth, AIF
 It’s understandable. We look to invest in something different in our 401(k), and what is the most accessible bogey to judge the funds in your plan? Past performance. They tug at the foundation of human nature, greed and fear. Our friend Carl Richards wrote an excellent piece in the NYTimes.com Bucks Blog on this topic:
Whenever a mutual fund advertises performance, the Securities and Exchange Commission requires that it includes the disclaimer that “past performance does not guarantee future results.”
A new study by researchers at Arizona State University and Wake Forest Law School suggests that this warning is not enough. They recommend something a bit stronger: “Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future. Strong past performance is often a matter of chance.”
Despite the warning from the S.E.C. and pretty conclusive evidence that past performance has very little predictive value, most of us still use performance as the predominant factor in choosing our investments.
This is one of those times in investing where our experience in almost every other area of life works against. If you’re going to hire contractors to remodel your house, one of the first things you do is look at other houses they have done. It seems reasonable to expect that the work they do on your house will be at least as good, if not better.
When it comes to mutual funds, however, the past has almost no predictive value. People have spent years looking for a way to identify mutual funds that will do well going forward. They have looked at almost every factor you can think of: education, experience, hair color and, of course, past performance.
The only factor anyone has found with any predictive value was the internal costs of the fund. The higher the costs, the worse the performance. This is a case where you often get what you do not pay for.
Despite all the evidence to the contrary, we still scour the annual lists of “Ten Hot Funds to Own Now,” which are often based on past performance, looking for a place to put our life savings. We still look in the rear-view mirror. Think about the last time you made an investment decision. Did you look to the past for some prediction of the future? After all, how much sense would it make to invest in a fund that had performed poorly?
But finding the next Peter Lynch is an almost impossible task. Focus instead on finding a low-cost investment that you can stick with over the long haul.
Read the Article at NYTimes.com
Tags: 401k, 401k investor help, Carl Richards, investment behavior, personal finance, retirement
Posted in 401k help, conflicts of interest, investing, investment behavior, investment education, retirement | No Comments »
Sunday, May 2nd, 2010 by Chad Griffeth, AIF
The following are some of the highlights discussed in the May ‘10 Research Newsletter from John Whaley, CFA, AIF, Director of the BeManaged Research Department.
- US Stocks Up, Foreign Stocks Down in April
- What Does the Hertz Purchase of Dollar/Thrify Tell Us?
- Red Flags That Deserve Attention
- Unemployment Duration
- Bank Credit
- Sovereign Debt
Download the Newsletter
Tags: 401k, 401k investor help, BeManaged Newsletter, John Whaley, personal finance, retirement
Posted in 401k advice, 401k help, Asset Allocation, BeManaged, investing, investment education, retirement | No Comments »
Friday, April 9th, 2010 by Chad Griffeth, AIF
 Impact of 1% Savings Increase is Tremendous I have to give it to the NYTimes. Their new “Bucks” blog includes great insight from our friend Carl Richards of BehaviorGap.com. Just yesterday they posted a very easy to use, interactive 401(k) savings calculator that illustrates how increasing your contributions just 1% creates a very different retirement picture for you upon retirement, while avoiding “paycheck shock.” There is the point beyond the calculator. When working with 401(k) investors, we meet with people who expect the performance of their investments to drive them toward a successful, dignified retirement while being unwilling to save beyond the company match. The idea tends to be that they need to be more aggressive in order to meet their goals, but there is no way they are going to increase their savings. Well, unfortunately that only works well during bull markets. When a down market strikes, it can send them reeling and headed on a dangerous cycle of investment decisions (more on this in the next segment). I am not trying to say times are easy for anyone. Regardless of what CNBC says, this economy hasn’t improved, only the markets have. That being said, our team has had so many conversations with 401(k) investors that we feel it’s kind of an epidemic among a large segment of investors. Here is how the conversation typically goes:
Investor: “I would like to become more aggressive, as I need to make more money.”
Us: “No problem, let’s review your risk profile and make sure you are comfortable with the consequences of increasing your risk.”
Investor: “Consequences?”
Us: “Yes, you see, it’s easy to be aggressive when the market is having a fantastic bull run as we have had over the last 13 months. However, the downside is that if the market turns and heads the other way, it will open you up to more losses.”
Investor: “Well I don’t want that, that’s why I hired you to help me.”
(After reviewing the risk profile questions and finding that nothing has change with his desired risk tolerance)
Us: “Unfortunately, we can’t press a button and make sure the market is always going up. No one truly knows where the market is going to close on Friday, at the end of the month, or at the end of the year. Right?”
Investor: “Right.”
Us: “That is why we are making sure your portfolio is managed to the level of risk you have instructed, so you are exposed only to that amount of risk. Therefore, instead of increasing your risk, let’s look at your contributions. You can definitely control how much you put into the account, but not the market’s performance.”
Investor: “That makes sense.”
Here is a few very simple secrets from what we have learned through our experience with investors:
- The most successful 401(k) investors are not actually investors. They are SAVERS. Small increases (see image below) can make a huge difference. Just consider your savings as the fuel for your retirement fire. Click here to find out for yourself
- We have never met anyone that had TOO MUCH MONEY when they retired.
- Many 401(k) plans now have Automatic Increase functions, in which you choose a date and percentage, and your contributions will automatically increase by 1%-3% (your choice) per year on a specific date. Turn it on. Life often gets in the way of doing this manually, so this allows you to put your retirement savings on auto-pilot.
Tags: 401k, 401k investor help, investment behavior, personal finance, retirement
Posted in 401k advice, 401k help, Asset Allocation, investing, investment behavior, investment education | 1 Comment »
Tuesday, April 6th, 2010 by Chad Griffeth, AIF
 Real 401(k) Planning As you know, our friend Carl Richards is a writer for NYTimes.com. We have definitely encountered people trying to find the “silver bullet” investment that will magically create huge gains for their 401(k). Unfortunately, this typically results in some really outlandish investment “strategies” and chasing the performance of the “best fund.” The cost of those decisions to their nest egg is tremendous. The following is Carl’s most recent post, and I won’t try to water it down with a summary, for I think every investor should read it.
You make good financial decisions only within the context of your goals.
This may seem obvious, but think about the amount of time and energy spent trying to find the “best investment.” Magazine covers are devoted to it, and books are written about it. There seems to be an entire industry built around this wild goose chase.
But the reality is that there is no such thing as the best investment.
The idea that there is some mythical investment that we can label the best, without first considering how it fits into the context of your life, is crazy. It’s like getting in a debate with a friend about which car you should drive on a trip before you’ve even decided where you’re going. How can you decide on the vehicle before you determine the destination?
This is true for all financial products. Life insurance, mutual funds and even bank accounts can be judged only based on how well they help you reach your goals. Since your goals are unique, what might be right for you could be a disaster for someone else.
Instead of spending so much time searching for the best financial product, we’re much better off taking the time to reflect on what is really important to us and then aligning our use of capital with those values. What good would it do to find the mythical best investment and end up with a bankrupt personal life? David Brooks recently highlighted a similar issue: most of us are focusing on the wrong things if our goal is happiness.
So rather than reading the latest list of the “10 Best Investments for a Post Credit Crisis World,” try asking yourself some questions to discover what is really important to you. Here are two sites to spark some thought:
1) A discussion of George Kinder’s three questions about life planning on the Get Rich Slowly blog.
2) Krista Tippett’s discussion about the economic crisis and the questions it forces us to ask ourselves.
I have to warn you that this can be a painful process, because it forces you to think about things outside the confines of a spreadsheet. Be patient with the process and realize that in the end it’s not about the money. It’s about your life.
Tags: 401k, 401k investor help, Carl Richards, investment behavior
Posted in 401k help, Asset Allocation, investing, investment behavior, investment education, retirement | 1 Comment »
Thursday, April 1st, 2010 by Chad Griffeth, AIF
The following are some of the topics discussed in this month’s newsletter from John Whaley, CFA, AIF, the Director of our Research Department.
- Stock Gains Accelerate in March
- Trends in Savings and Investments Among Workers
- Use of Stable Value/Money Market Funds and Bond Funds in Your Retirement Portfolio
Tags: 401k, 401k investor help, BeManaged, BeManaged Newsletter, CFA, John Whaley, personal finance, retirement
Posted in 401k advice, 401k help, BeManaged, investing, investment behavior, investment education, retirement | No Comments »
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