WSJ Struggles to Find 401(k) Expenses

If a reporter from the Wall Street Journal has trouble figuring out what she's paying in 401(k) plan expenses, what chance do the rest of us have?

In an interesting article today, WSJ reporter Karen Blumenthal opened up the hood on her 401(k) account to take a look inside. She got some fee information from her plan provider's website, some from a "Summary Plan Description" from her company's HR department, and some from Morningstar. Even after going to three separate places, there was still one fund in her plan that she couldn't get information for.

Hopefully, the new DOL proposal requiring more fee and fund disclosure on 401(k) statements will help reduce, if not eliminate, all the legwork 401(k) plan participants have to do to get fee information.

A few other points of note from the article:

1. This paragraph toward the top of the article is about the relationship between fund expenses and performance.

"In almost every study we've run, expenses show up as a very significant predictor of future performance," says Christine Benz, director of personal finance at Morningstar Inc., the investment research firm. In other words, over time, funds with lower fees are likely to outperform those with higher fees in the same category. By contrast, says Ms. Benz, "our data indicates that past performance is a weak indicator" of future results.

2. The reporter's plan is better than most. Her employer covers many of the administrative expenses, there are index fund options, the expense ratio data (for most of the funds) was fairly easy to find, and the funds had no loads.

To read the entire article, click here.

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A Financial Headline You'll Never See

Did you catch this story that made big news last week? The Yahoo! headline read:

"Ex-hedge fund manager ordered to pay $300 million."

It's about former hedge fund manager Paul Eustace who, according to the Commodity Futures Trading Commission, "cheated clients by sending out fake account statements." Evidently Eustace told clients that their portfolios were valued at over $230 million while he "fraudulently operated the funds and lost millions of dollars."

So what's the financial headline I bet you'll never see?

"Ex-index fund manager ordered to pay $300 million"

I wonder how many more millions of dollars Eustace's clients would have in their portfolios right now if they had just put all their money in a low cost index fund or ETF instead of a risky (and evidently fraudulent) hedge fund.

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More 401(k) Problems?

Here's an article from IndexUniverse.com titled "Auditors Finding More 401(k) Problems".

The article talks about the IRS is finding a "substantial" increase in the number of compliance problems in 401(k) plans. Not surprisingly, the problem is especially troublesome for small businesses.

It's a short article, and worth a quick read. We especially agree with the sentiment in it's conclusion:

"So what does this all mean for index investors? It could be another sign that pressure is building to clamp down even more on the use of high-priced actively managed funds."

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How Golf Can Make You a Better Investor

Imagine shooting par every time you play golf.

It doesn't matter whether you're playing Augusta National or your local public course. It doesn't matter whether it's a beautiful, warm sunny day or a cold, blustery, rainy one. You are guaranteed to shoot par.

Do this over the course of your lifetime and your performance will surpass all but the Tiger Woodses of the world. In fact, shoot par day in and day out and you'll probably end up in the Golf Hall of Fame!

This is because par is not average. Par is just the benchmark all golfers use to measure their performance. Most golfers will never beat par in their lives, let alone do it consistently.

For investors, the index (usually the S&P 500) is the benchmark used to measure their performance. And as is the case with par in golf, the index is not average.

Most investors will fail to match (let alone beat) the index. Even the investment "pros" usually fall short of the benchmark. In fact, in any given year approximately 80% of all mutual funds underperform their benchmark index.

How to Shoot Par With Your Investments

The good news for investors is that it's easy to "shoot par" when it comes to investing. By investing in index funds or ETFs, investors can tie their returns to those of the index. No matter what the situation or what the market conditions, index investors will achieve returns that match the index.

Do this over the course of your lifetime and you can increase your odds of a comfortable retirement – which will give you plenty of time to work on that golf game!

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Par Is Much Better Than Average

Investment performance is like golf, where the underlying benchmark is par. Par does not mean average. The average golfer, like the average mutual fund, does not shoot par. Unlike the pro golfer, the professional money manager often does no better than average and rarely beats par! Indexing enables investors to shoot par every time. Par is much better than average!

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