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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Secrets of the 0.2% Date: 1/21/2012 11:08 PM
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http://www.smartmoney.com/retirement/planning/secrets-of-the...

Those hoping to occupy Easy Street in retirement may want to follow the lead of the 0.2%: the topmost tiny fraction of savers who have managed to sock away more than $1 million in their 401(k)s.

That figure, based on data from the Employee Benefit Research Institute, may depress those with sums closer to the median 401(k) balance of roughly $60,000 -- and for good reason. Even among employees 55 and up who have been contributing to the same 401(k) plan for more than 20 years, just 2% are estimated to have cracked the $1 million mark, says Jack VanDerhei, EBRI's research director.

</snip>


intercst
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69952 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 12:35 AM
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</snip>

Let me summarize the snip.

Earn a lot. And save a lot.

Brilliant advice. I'm glad we've got the brightest minds working on that. I never could have figured that out myself.

The only decent thing they had to say was that 401k plans aren't working out the way people had expected. And that's pretty easy to diagnose. 401k plans let you take the money out before retirement. Old fashioned pension plans generally didn't let you do that. Eliminate the ability to withdraw before retirement, and they'd work out a lot better for the rank and file.

--Peter

PS - Is that the 0.2% or the 2%? That was the first tip off that the article was mostly useless.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69953 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 12:57 AM
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The only decent thing they had to say was that 401k plans aren't working out the way people had expected. And that's pretty easy to diagnose. 401k plans let you take the money out before retirement. Old fashioned pension plans generally didn't let you do that. Eliminate the ability to withdraw before retirement, and they'd work out a lot better for the rank and file.


don't they also tend to have a limited menu of
funds and such --chosen by some HR clerk?

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69954 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 1:38 AM
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ptheland asks,

PS - Is that the 0.2% or the 2%?

According to the article, 0.2% of all 401k accounts have a balance of $1 million or more. If you only look at accounts held by people 55 years of age and older, 2% of those have balances over $1 million.

intercst

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69955 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 1:42 AM
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0x6a74 asks,

don't they also tend to have a limited menu of
funds and such --chosen by some HR clerk?


The high fee, high commission mutual funds in the 401k plan of one Fortune 500 corporation I worked for were apparently sold to the company by the nephew of the CEO.

intercst

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69956 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 7:53 AM
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My husband worked for a large corporation and that 401k had a good choice of funds as well as an option to basically self manage with the ability to invest in stocks,etc.

It would be interesting to see how much of an urban myth covers the limited funds, high fee 401k thing. I had good options offered for a 403b back in 1990.

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69957 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 8:01 AM
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So if that's what's wrong with the 401(k), who are these super-rich among retirement savers who have managed to make the system work -- and what are they doing differently? They don't necessarily have higher than average salaries or the investing IQ of Warren Buffett, VanDerhei says. "The one characteristic that differentiates the winners from the non-winners here is contribution rate -- a high percentage of those million-dollar savers had constant participation and high contribution rates," he says.

I think this paragraph is key, along with this one:

Even some 401(k) providers don't disagree. With traditional pensions, employers hired teams of experts to make the kind of tough investing decisions now entrusted to individual employees, says Catherine Golladay, vice president of participant services for Charles Schwab. "Left to their own devices, most people do not have the knowledge or the ***discipline*** to do this themselves," she says.

FWIW, the article states:

The rule of thumb, advisers say, is to accumulate enough to be able to replace 75% to 80% of one's income in retirement, without -- ideally -- having to draw down more than 5% of the balance per year.

and then:

Bedda D'Angelo, president of Fiduciary Solutions in Durham, N.C., says one of her clients amassed $6 million in her 401(k). An executive at a pharmaceutical company, she maxed out her pre-tax contributions each year, and including after-tax contributions saved close to 30% of her earnings annually. She was the kind of person who never had debt -- not even mortgage debt, D'Angelo says. "She was a disciplined saver, whenever she got a bonus -- she would invest half of it." Her plan had a mix of large cap, small cap, international equities -- and a bit of bonds, and at 56, when she retired, she was earning $450,000.

So, 5% of $6 million is $300,000. $300,000/$450,000 is 66%. This is less than 75%, so I guess her client failed. :-)

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69958 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 11:57 AM
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reallyalldone writes,

It would be interesting to see how much of an urban myth covers the limited funds, high fee 401k thing.

Here's a NYTimes article on 401k fees.

http://www.nytimes.com/2011/06/04/your-money/401ks-and-simil...

An annual total of 0.5 percent isn’t reality for most workers, alas. According to BrightScope, a company that gathers data about retirement plans and gives some of that data to individuals while selling more information to employers, the all-in fees, including those mutual fund investments you may already know about, average 1.08 percent for plans with balances of more than $100 million, 1.36 percent for those with $10 million to $100 million and a whopping 1.90 percent for plans with under $10 million.

</snip>


Of course, those are the averages. That means about half the people are paying more.

intercst

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Author: wolfman225 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69959 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 12:42 PM
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This talk of high fees in 401k plan fund selections has me a little confused. In making my selections, I tried to keep in mind the Fool's advice of keeping any fees/transaction costs under 2%. Should I aim lower than that? My 401k, while new, has done relatively well (at least for this first year), considering all of the volatility. Here's a breakdown of expense ratios

Vanguard Total Stock Market Index........... 0.07%
MainStay Large Cap Growth................... 1.04%
Perkins Mid Cap Value....................... 0.83%
Select Mid Cap Growth (TRP/Frontier)........ 0.86%
Selec Sm Cap Growth Eq (W&R/Wellington)..... 0.99%
Euro-Pacific Growth......................... 0.85%

Each of these is the lowest in expenses of those available in my plan for each sector. The only real dog I have right now is the Euro-Pacific Growth fund (my smallest holding, @ 5%). Unsurprising, given the events in Europe.

Would any of you say that these expenses are out of line?

I'm currently contributing 20% pre-tax to the 401k along with a small company match of 3%. I am also putting the $5000 max into a ROTH IRA built around dividend payers in a modified DOD/FF approach (I call it a "Foolish Five". This amounts to a total contribution to retirement of appx. 35% of gross income.

I'm being as aggressive as I am in an attempt to "catch-up" after a divorce in my late 40's. Projecting potential results using historical rates of return for the market in general shows me to be on the edge. If SS is still around in anything like it's current form in 20yrs, I'm golden. If not, different calculators show that I stand to run through my money between age 85-100. Any opinions? I also have set up my contribution schedule to automatically increase by 1% each year.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69960 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 1:04 PM
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Bad use of statistics in at least several ways;

This percents are biased because a lot of people that did have a million in their 401K probably retired early and would have been removed from the study.

The million dollar mark is unrealistically high benchmark because the average wage of people that working is surprising low and there are a lot of low paid workers.

Someone making $40,000 a year does not need a million dollars to replace the income since social security will replace a significant percentage of it. Someone who is 55 and making $40,000 and has half a million in a 401k is in reality doing wonderfully.

A much better way to have measured it would to have looked at what percent of people have something like 20 times their income in the 401k.

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Author: RHinCT Big red star, 1000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69961 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 1:17 PM
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A much better way to have measured it would to have looked at what percent of people have something like 20 times their income in the 401k.

That would be great if the data was available. I suspect that the analysis that was done didn't have data on income, just on balances. Sometimes - most of the time - you just study what you have in the hope of finding something useful.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69962 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 3:36 PM
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Of course, those are the averages. That means about half the people are paying more.

I thought if it was a median, half the people would be paying more. An average is a mean, isn't it ?

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69963 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 3:44 PM
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reallyalldone asks,

I thought if it was a median, half the people would be paying more. An average is a mean, isn't it ?

The average is equal to the median only if you have a standard distribution (i.e.. bell-shaped curve). In real-life, you rarely get a standard distribution, it's either skewed towards the top or the bottom, that's why I said "about half the people".

intercst

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69964 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 4:39 PM
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wolfman225 asks,

This talk of high fees in 401k plan fund selections has me a little confused. In making my selections, I tried to keep in mind the Fool's advice of keeping any fees/transaction costs under 2%. Should I aim lower than that? My 401k, while new, has done relatively well (at least for this first year), considering all of the volatility. Here's a breakdown of expense ratios

Vanguard Total Stock Market Index........... 0.07%
MainStay Large Cap Growth................... 1.04%
Perkins Mid Cap Value....................... 0.83%
Select Mid Cap Growth (TRP/Frontier)........ 0.86%
Selec Sm Cap Growth Eq (W&R/Wellington)..... 0.99%
Euro-Pacific Growth......................... 0.85%

Each of these is the lowest in expenses of those available in my plan for each sector. The only real dog I have right now is the Euro-Pacific Growth fund (my smallest holding, @ 5%). Unsurprising, given the events in Europe.

Would any of you say that these expenses are out of line?

</snip>


The average person is paying too much in fees.

I'd compare your overall return vs. putting 100% in the Vanguard Total Stock Market Index. If those other funds on your list have high portfolio turnover, the hidden costs could easily double the 0.83% to 1.04% expense ratio. The hidden costs for the Vanguard fund are only 0.022%

Here's an article I wrote a while back that explains the issue.

http://retireearlyhomepage.com/four_percent.html

intercst

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Author: RHinCT Big red star, 1000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69965 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 5:40 PM
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The average person is paying too much in fees.

Sorry, I couldn't help linking to this recent Dilbert cartoon. It doesn't really apply to a 401k as such, but it still sort of fits.

http://dilbert.com/2012-01-20/

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Author: StockGoddess Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69966 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 5:53 PM
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I'm currently contributing 20% pre-tax to the 401k along with a small company match of 3%. I am also putting the $5000 max into a ROTH IRA This amounts to a total contribution to retirement of appx. 35% of gross income.



This is very similar to my own contribution rate.

If you and I can't retire someday, NOBODY can....

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Author: wolfman225 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69967 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 7:59 PM
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intercst wrote:

I'd compare your overall return vs. putting 100% in the Vanguard Total Stock Market Index. If those other funds on your list have high portfolio turnover, the hidden costs could easily double the 0.83% to 1.04% expense ratio. The hidden costs for the Vanguard fund are only 0.022%

Do you have a formula I could use to figure total return that accounts for differing weekly contribution amounts? I'm not real good at setting up spreadsheets to do that. Or can I simply average the return %'s shown for each in my quarterly reports?

I had assumed (I know, I know) that the expense ratio accounted for turnover and trading costs.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69968 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 9:35 PM
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According to the article, 0.2% of all 401k accounts have a balance of $1 million or more. If you only look at accounts held by people 55 years of age and older, 2% of those have balances over $1 million.

I see. Thank you for the clarification.

Clearly I read over that part of the article too quickly.

Still didn't have anything really interesting in it, though.

--Peter

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69969 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 10:20 PM
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wolfman225 asks,

Do you have a formula I could use to figure total return that accounts for differing weekly contribution amounts? I'm not real good at setting up spreadsheets to do that. Or can I simply average the return %'s shown for each in my quarterly reports?

I'd use a longer period than one quarter. Maybe use the 5-year returns for each of the funds in your portfolio. You can find that on the www.Morningstar.com website

Here's an article on how to calculate the hidden costs for a mutual fund as well as a simple Excel spreadsheet you can download.

http://retireearlyhomepage.com/mutualhiddencosts.html

intercst

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69970 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/22/2012 11:16 PM
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401k plans have only been around for 30 years. You're pretty good at spreadsheets. If a person is contributing the pre-tax limit for all 30 of those years, what return would they need to earn to reach $1 million? I wonder if large contribution by the employer was needed to reach $1 million.

I would think another reason why so few reach $1 million is that they roll over their 401ks instead IRAs when they leave their employer. Another reason is that fewer employers offered them when they first became available.

Here's a good article on the history of the 401k. In the article, they give the contribution limits over the years in case anyone is interested in estimating the contributions needed to reach $1 million.
http://www.ici.org/pdf/per12-02.pdf

PSU

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Author: katiewa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69971 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 1:03 AM
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1987 was the first year for which I was able to easily find contribution limits, so I ran my spreadsheet from 1987 to 2016 and assumed the individual started working at age 23. I also assumed that 2013-2016 limits would be 17K, 17.5K, 17.5K, and 18K, with a 6K catch-up limit. I used simple interest on contributions for previous years and merely added contributions for the current year (no interest calculated for current year) to get a running total. At the stated maximum contributions
* At 5% return, an individual would have $763,036
* At 6% return, an individual would have $883,071
* At 7% return, an individual would have $1,027,361

A professional couple with good salaries, only 1-2 kids, and no divorce or significant illnesses or layoffs could theoretically do pretty well. But for perspective, the absolute top salary paid in our school district (PhD or Master's+36 and 14 years of experience) is just shy of $58K/year (effectively 10 months). Starting salary is $30K. You can't max out your contributions on that kind of income.

Kathleen

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69972 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 7:25 AM
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I would think another reason why so few reach $1 million is that they roll over their 401ks instead IRAs when they leave their employer. Another reason is that fewer employers offered them when they first became available.

Both of these are really good points. I continue to think of money as 401k when it has been rolled to a IRA. I'm 57 and do remember the beginnings of 401ks and IRAs.

There have also been rocky years where matches where suspended which may also have influenced how people chose to save or invest.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69973 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 9:39 AM
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* At 5% return, an individual would have $763,036
* At 6% return, an individual would have $883,071
* At 7% return, an individual would have $1,027,361

A professional couple with good salaries, only 1-2 kids, and no divorce or significant illnesses or layoffs could theoretically do pretty well. But for perspective, the absolute top salary paid in our school district (PhD or Master's+36 and 14 years of experience) is just shy of $58K/year (effectively 10 months). Starting salary is $30K. You can't max out your contributions on that kind of income.


But by comparison, you likely still get a substatial pension.

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69974 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 9:40 AM
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>> I would think another reason why so few reach $1 million is that they roll over their 401ks instead IRAs when they leave their employer. <<

Yep, I did this when I left my first employer in 1999. If the current market value of that rollover IRA were added to my current 401K balance it would still be over 40% of the combined total. I doubt I could ever reach $1M with just my current 401K but if I added the value of that rollover IRA (with no other commingled funds) there's a chance a decade or two down the road.

#29

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69975 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 9:59 AM
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roll over their 401ks instead IRAs

OCD: into

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69976 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 2:36 PM
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Well, it was not too difficult for me go get over $1 million in my IRA (rolled over from the 403B - similar to a 401K, but for non-profits), and the same for my wife.

However, one needs to pay attention to the market, and be willing to get out when necessary, and go in when appropriate. Selling everything on March 15, 2000, was a key decision, for example. Of course, I was heavily into the things that had been going up at the time, so that helped also. It is good to be in things with high momentum, so long as that lasts. Building a diversified portfolio will not get you as much profit as picking and switching based on momentum, or relative strength.

Of course, there have been other significant decisions since then, most of which I have forgotten, but none quite so dramatic.

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69977 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 2:43 PM
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However, one needs to pay attention to the market, and be willing to get out when necessary, and go in when appropriate. Selling everything on March 15, 2000, was a key decision, for example. Of course, I was heavily into the things that had been going up at the time, so that helped also. It is good to be in things with high momentum, so long as that lasts. Building a diversified portfolio will not get you as much profit as picking and switching based on momentum, or relative strength.

You have more control over your IRA. In the 401k, you are limited to the choices offered by the employer and there may be limits on how often you can change your investment choices.

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69978 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 3:56 PM
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I spent my entire working years as a buy and holder of mostly (now only) Vanguard funds. I stopped working entirely 18 months ago. And yes, my rollover IRA has more than $1M in it. But the main money is in our taxable account, and it was accumulated the old fashion way by working, saving, and investing, and living a reasonable lifestyle. Good luck to uas all.

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69979 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/23/2012 4:17 PM
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Yes, it is certainly true that mutual fund managers have come up with restrictions that keep people from making as much money as they should. By these restrictions they hope to maintain their fees on at least a shrinking amount of money, even though they may be doing a terrible job of managing it.

Of course, the question I always ask is "If I am smart enough to know to sell your fund, why don't you take corrective action by raising cash or buying puts?" Yes, of course many funds are not allowed to buy puts or any other options, but who made those rules? The lazy and greedy fund managers.

A good 401K would probably allow investments in a large number of ETFs, but the fund companies give the company kickbacks. I wonder if that has any influence?

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69981 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 8:50 AM
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Earn a lot. And save a lot.

You don't even have to earn a lot.

Way back in the day before TMF became a shill for their products, they had an example of how "easy" it was for someone earning minimum wage to save/invest and become a millionaire. IIRC, that was back when minimum was around $5.

While it was unrealistic in that it didn't take into account having to live off minimum wage and that it took about 45 years, it proved the point that you don't have to have a 6 figure income to get rich.

JLC

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69982 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 8:55 AM
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In making my selections, I tried to keep in mind the Fool's advice of keeping any fees/transaction costs under 2%. Should I aim lower than that?

Yes. FWIW, that 2% rule was for stock trading commisions. Made you think before paying $10 to buy $100 worth of stock. It was also back in the day when trade commisions could be $50.

Mutual fund fees are a different beast. They are not the cost of buying/selling. They are a management fee, paying someone to run the fund. IMHO, the best gauge would be to compare the fee to a comparable Vanguard Fund. Then you'll see how badly you're being gouged.

JLC

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69983 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 9:03 AM
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The one thing I don't understand is why so many 401k plans still limit what a person can contribute per pay. Many still cap it at 20% while others cap it at 50%.

I see no vested interest in any company capping it at a low number.

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Author: SRenaeP Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69984 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 9:09 AM
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The one thing I don't understand is why so many 401k plans still limit what a person can contribute per pay. Many still cap it at 20% while others cap it at 50%.

I see no vested interest in any company capping it at a low number.


My guess would be something to do with highly compensated employees. My company has a 25% limit and sometimes I'm tempted to contribute the max as another means of backdooring into a Roth IRA.

-Steph

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69985 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 9:17 AM
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Way back in the day before TMF became a shill for their products ...

Ah ... the good ol' days ...

I was very lucky to have found this site back in the day. I learned a lot. (If I were to discover it these days, I think I'd just take a pass on it.)

The Brothers G have taken off their jester's caps and have become indistinguishable from the Wise.

culcha

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69988 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 9:32 AM
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My guess would be something to do with highly compensated employees.

Possible, but I doubt that is the reason. I have worked fo two different large financial institutions (eg. banks), and one of them allowed for 50% while the other only allowed 20%. I would not think their highly compensated employees would make that much of a difference.

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Author: RHinCT Big red star, 1000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69993 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 12:59 PM
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I suspect the highly compensated issue is the reason. Where that line is drawn depends on a combination of the distribution of employees at different pay levels, and the degree of participation at the varying levels. My 401k was with three different consumer packaged goods companies through a succession of acquisitions. The limit was never more than 16%, but after a few years I was classified as highly compensated and restricted even more. My understanding was that the rank-and-file plant workers - the largest group - mostly put in no more than the 5% or 6% it took to get the maximum match. Was the bank that allowed 50% the kind that had lots of branches and tellers on the payroll? Or perhaps it was an investment bank with a smaller percentage of grunt workers? If my reasoning is correct it would be the second.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69995 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 1:18 PM
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I was very lucky to have found this site back in the day. I learned a lot. (If I were to discover it these days, I think I'd just take a pass on it.)

The Brothers G have taken off their jester's caps and have become indistinguishable from the Wise.


Jeese, does anybody even go to the main page anymore? I guess they must have one. { Yup, just checked. They do. Looks just like the homepage of all the other "investment" sites.}

I have a bookmarked direct link to the boards, and that's the only link I use.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70007 of 75340
Subject: Re: Secrets of the 0.2% Date: 1/24/2012 3:48 PM
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I suspect the highly compensated issue is the reason.

Looks like we are both right:

http://www.kiplinger.com/columns/ask/archive/2006/q0918.htm


The most common explanation is because of "nondiscrimination rules." By law, companies cannot have a situation where highly compensated employees (currently those earning more than $100,000) contribute a lot more to their 401(k)s than the rest of the employees. As a result, some employers set a percentage of income limit to prevent this situation.

...


Another possible explanation: Some of the percentage limits are just outdated rules. Before 2001, the employee's 401(k) contribution plus the employer match could not be more than 25% of a worker's income, so some employers capped their employee contributions at 15% to make sure they fell within those limits, says Rick Meigs, president of the 401khelpcenter.com.

But in 2001, that limit was increased from 25% to 100%. "For all purposes, the plan limit was no longer necessary, but many plans never removed them," says Meigs.

Employers aren't required to make a change, but it's worthwhile to ask. If that's the only reason for the limits, see if the plan documents could be updated to eliminate the cut-off.

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