Invest for your future, not for the financial services industry
Securities attorney and investment adviser Daniel R. Solin has saved our bacon once again, just as he did at this time last year. That's when he offered a short book on investing for everyone - even those sitting at the beach, smudging pages with sun-block-smeared fingers.
Now he offers "The Smartest 401(k) Book You'll Ever Read" (Perigee Books, $20). Like his earlier book, "The Smartest Investment Book You'll Ever Read," the new book is short.
How short?
Try 200 pages divided into 53 chapters. That's less than four pages a chapter.
Even that measure, however, may give the impression of verbosity, because the first 52 chapters are done in 166 pages - just over three pages a chapter.
We're talking brief here.
The last chapter, "Who Says So?" is for data geeks. It quickly takes you through all the supporting research for the preceding 52 chapters. This book is so short and to the point that even a congressman or senator could read it.
And, trust me, they should.
Solin lays out how most of us are getting messed over in our 401(k) plans and 403(b) plans. It's also a blueprint for how to improve them. If they were improved, all of us who actually work for a living and try to save money might live to see our plans bear fruit rather than losing it to the excesses, expenses and marketing hype of the Retirement/Investment Complex.
Here are some of the big points in the book:
Solin says that expenses count. They always count. A young college graduate who saves $200 a month for 40 years and earns 8 percent before expenses of 2 percent will accumulate $400,290. But the same college graduate investing in funds with expenses of 0.3 percent would have $644,484. Quite a difference.
Active management doesn't cut it. While some managers may beat their appointed index for a few years, very few beat it for any period of time. This doesn't mean it's impossible. It's just not very likely. Meanwhile, hundreds of failed funds are quietly buried or merged every year. Over the last five years, for instance, nearly 30 percent of all actively managed domestic equity funds were shut down or merged.
Company stock in your 401(k) plan may benefit the management of your company, but it's a big gamble. A plan that actually looks out for the worker's future would limit or eliminate holdings of company stock.
Frustrated with your plan and what it offers? Consider going straight IRA, or using an IRA to buy investments that are closer to what you should be holding - low-cost index funds.
Take those steps - cutting costs by indexing and building a simple couch potato portfolio-like retirement plan - and you'll have a good shot at accumulating about 50 percent more by the time you retire. That's not small change.
Solin reserves some of his harshest words for 403(b) plans. He is not alone in this, of course. William Bernstein has written that 403(b) plans can be found in the "dankest, foulest smelling cellars of the financial world."
This ugly situation exists because 403(b) plan marketing is dominated by the insurance industry. That industry spends a lot of money to influence legislators and some of the institutions that purport to help teachers. He points out that the National Education Association received $50 million in royalties in a single year from the annuities and other insurance products that it endorsed. With friends like that, who needs enemies?
I guarantee that you will become very angry as you read this book. It makes very clear that no one is looking out for workers. Not Congress, not the regulators, not corporate executives, not education unions, and certainly not the financial services industry. To all of them, you and I are just lunch.
Anger without redress, however, is wasted energy. Fortunately there are remedies.
Today, not tomorrow, anyone who has a plan that stinks can do better simply by investing in a low-cost IRA with index funds. You can also agitate for better plan choices.
Your company may not care about you, but it doesn't matter. The dorks with MBAs don't want to be revealed as idiots, and our relentlessly self-serving top dogs hate litigation.
My suggestion: Read this book and take action. The difference will all be in your pocket.