401k Investment Menus: Research Summary






While mutual fund companies are in the business of growing and managing their funds – not record-keeping and administering 401k plans – they continue to play a significant role in the 401k business, offering a “bundled” approach where they serve as fund manager as well as record-keeper and third party administrator.  This can create a conflict of interest because they are hired by the plan sponsor to manage the plan in a fashion that serves the best interest of its participants – yet the fund company has a clear incentive to offer their own “Proprietary” funds which generate greater margins for the mutual fund family.  As John Bogle said of the fiduciary debate “No man can serve two masters”.

A recent study by the center for retirement research found that additions and deletions from the investment lineup often favor the company’s own family of funds (i.e proprietary) adversely affecting the retirement income security of participants.  The study can be found here.


Estate Planning Smarts Book Review








Deborah L. Jacobs just published the 4th edition of her widely recognized book “Estate Planning Smarts”.

Thoughtfully and thoroughly Jacobs bridges the gap between abstract theory and practical application on a subject very few of us like to think about – which I guess is why about half of American adults with children have not made a will!  According to Jacobs, the book is not designed to replace an estate attorney – but rather to give us background and context before meeting with one.

Out of the gate in chapter one, Jacobs sets the tone by imploring us to draft the 5 “Essential Documents”:

  • Will(s)
  • Durable power of attorney(s)
  • Health Care Proxy(s)
  • HIPAA release(s)
  • Living will(s)

Do you have these documents in place?  If not, it’s a good idea to find an attorney and get them drafted – it could save your loved ones a lot of time, money and difficulty.

Chapter 3 enlightens us how recent changes in tax law have helped:  We can currently transfer 5.43 Million during lifetime or death before either gift or estate taxes kick in (known as the applicable exclusion).  However… a quirk that complicates planning today is that (at last count) at least 19 states have state estate tax on top of the Federal.

And in many states the state tax exemption is not unified with the federal.  Jacobs reminds us that this requires careful and creative planning and several ideas are described in the book.  Separately, the folks at PRW wealth management have put out a nice chart to find out what the 2015 exemption is in your state – which can be found here.

There is a lot more in the book covering:  trusts, retirement accounts, life insurance, gifting, creditor protection etc.

In the end the best approach is probably to hire a financial advisor – along with an estate planning attorney – but for those who like to start with books, I have found none better on the topic of estate planning than Estate Planning Smarts by Deborah Jacobs.


How America Saves







For better or worse – time will tell – the 401k and 403b plan has become the centerpiece of our private sector retirement plan system.  Today, over 90 million Americans participate – with assets totaling about 6.5 trillion.

One of the leaders in this market is Vanguard – overseeing more than 670 Billion in retirement plan assets.  And every year since 2000 they have been publishing a report called “How America Saves” – dissecting their 401k and 403b data.  The 2015 report just came out and here are three highlights:

  1. Professionally Managed Accounts continue to rise in prominence:  45% of all Vanguard retirement plan participants are now invested in either a single target date fund, balanced fund or managed advisory service.
  2. High level savings remains steady:  Plan participation was 77% in 2014, with the average participant deferring 6.9% of income to their retirement plan.
  3. Automatic (“auto”) features are growing:  The adoption of auto features has grown by 50% since 2009, 30% of Vanguard plans now use auto – enrollment.

There is more in the report including the Rise of the Roth option (56% of Vanguard plans now have a Roth option – with 14% of participants electing the option) and lots of other information – which can be found here.


Is She Better Than Him









It was the darkest hour of my career as a financial adviser.  Somewhere around April or May 2009 – ….. I am sitting with my retired clients and have to give them the bad news.  Their portfolio (mostly Equities, long only, a lot of index funds) is down about 50%.

He is getting nervous and starts to cough.  She doesn’t blink an eye and calmly says… “it’s only a paper loss – it will come back!”

We stay the course and six years later we are ahead of where we started – by far.  It was interesting to observe how  a man reacted differently to the news than a women.  And more evidence about this pattern continues to come in:  Women make better investors than men! 

Women tend to view money more holistically and – in general – focus more on long term goals while men tend to emphasize transactions.  Some research indicates that men trade 45% more than women!  A 2009 study by Vanguard found that during the 07-09 crisis, accounts led by women went down less than accounts led by men.

Why are women better investors?

  • Men are more competitive:  They try to “beat their rivals” … and are less apt to take outside advice.
  • Men are more overconfident:  This can lead to more risk
  • Men have more testosterone:  And there are connections between testosterone levels, estrogen levels and trading/investing with reason.

So what can men learn from women about investing?  Trade less, be more realistic, take outside advice…and stick to a long term plan and strategy. 

All That Glitters Is Goldman







Goldman Sachs is a powerful place.  I remember my first visit when one of the executives set me straight with the analogy:  ”Goldman Sachs is the Harvard of finance firms”…. or perhaps the NY Yankees of Baseball.  And the impression I got of the place was consistent with these analogies:  Impeccably dressed, energetic folks zipping around a gorgeous office in downtown NYC.

But today Goldman – as well as other firms like JP Morgan and Morgan Stanley – face challenges on many fronts, hence have turned to creating mutual funds for ordinary investors as a key source of revenue.  On the surface, it sounds great; who wouldn’t want these bright, influential types managing accounts for retirement savers?

But it’s another case of something glittering that’s not gold – as history has not shown these firms to be particularly good at managing retail Mutual funds.  And the funds created by Wall Streets biggest name of all – Goldman – have been particularly disappointing, with only 12% of the firms mutual funds outperforming their relative benchmarks over the last 10 years!










Like anything else in life, first impressions can be deceiving and we can’t always judge a book by its cover.  And while I can’t weigh in on the quality of Goldman’s work for its institutional client base, it’s pretty clear that when it comes to managing regular Mutual funds for ordinary savers and 401k participants – The Goldman glitter has not turned into gold.


Carl Richards is the creator of the weekly “sketch column” in the New York Times and is a columnist for Morningstar Advisor.  Carl has also been featured on Marketplace Money, Oprah.com and Forbes.com.  Through his simple sketches, Carl makes complex concepts easy to understand.  I recently caught up with Carl for a little Q & A.  Enjoy:

1)  Before we get down to business, would you please share a bit about your personal background?  Where you were raised, your family etc?
I was born and raised in Utah, which is where I currently live with my wife, my four kids and our dog Zeke.  We consider ourselves an outdoor family and love spending time doing everything from skiing in the winter to mountain biking in the summer.

2)  You are well known for your “sketches” – how did that begin?
To be honest, it was an act of desperation.  One day, while I was trying to explain a very important concept to some clients, all I got in return was blank stares.  So I stood up, walked to the whiteboard, and said, “No, like this….,” as I drew the concept.  They understood it, and the rest, as they say, is history.

3)  What is your most important advice for a plan sponsor (employer) who is establishing or maintaining a 401k or 403b plan for their employees?
Keep it simple.  I suggest sponsors and/or employers make it a priority to create high quality, well-designed education materials that are simple and focused on helping employees make smart financial decisions.

4)  What is your most important advice for a participant in a 401k or 403b plan in the context of selecting deferral amounts and investments?
Sign-up, defer as much as you can, then leave it alone.

5)  What are your views on the future of “Robo-advisors” and how that may affect traditional financial advisors?
Traditional financial advisors understand that they offer a unique value.  They can provide empathy and establish trust, emotions an algorithm doesn’t understand.  Advisors who recognize the value of empathy and trust have nothing to fear.  In fact, the robo industry will make advisors more efficient on the technical side, giving them more time and energy to focus on client relationships and needs.

6)  Can you share your thoughts on the Fiduciary vs. Suitability topic – and what it all means – or doesn’t mean – for retail investors and advisors.
A picture is worth a thousand words:

7)  Where can folks learn more about your work and buy your book?

is the best place, and I always encourage people to sign up for the newsletter to hear the latest news.  Of course you can buy the book at any local bookstore, but Amazon is open 24 hours a day, too.










According to the Dalbar annual quantitative analysis of investor behavior the return of the S&P 500 for the 20 years ending 2013 was 9.22% while the average investor earned 5.02%. 

What caused the gap of 4.20%?

According to Dalbar, the “major cause of the shortfall has been withdrawing from investments at low points and buying at market highs”.

That is the difference between investment performance and investor performance…. And the good news is that the variable causing the shortfall is one we can control:  behavior.

There are so many variables that a 401k or 403b participant cannot control – market performance, taxes, geopolitics et cetera.  But investment behavior is controllable…. and fortunately it’s the most important facet of successful investing; having a plan – sticking to it (making adjustments when appropriate).

And not panicking out at the bottom or chasing returns at the top.

So next time your  financial adviser is meeting with 401k or 403b plan participants – make sure she spends more time covering what’s important (behavior) and less time on the unimportant:  performance, taxes, economics, GDP, interest rates.. and all the rest.











The dramatic increase in average life expectancy during the 20th century might be society’s greatest achievement.

Most babies born in 1900 did not live past 50, yet life expectancy from birth in the US now exceeds 78 years! (83 in Japan)

But that is from birth.  If you happen to have made it to age 65 – and you happen to be married – your joint life expectancy is somewhere around age 94.

But these “bonus years” that science has gifted us will not live up to their potential unless we are prepared with sufficient retirement income.  And these days – for better or worse – the “go to” method of retirement investing for many Americans is the employer sponsored 401k or 403b plan.  So be sure to avoid the following 3 ways that people mess up their 401k or 403b:

1) Borrowing Against It:  According to a recent Fidelity study, 18% of  plan participants have outstanding loans.  While it’s good that the interest you pay back goes to your account, you are still missing out on gains by the amount borrowed.

2) Poor Investment Selection:  The wrong allocation (i.e too much or too little risk) can affect your ability to accumulate and distribute sufficient retirement income.  If your plan provides for on-line or one on one investment advice take advantage of it so you can get your allocation right.

3) Not Deferring Enough:  Everyone should invest at least enough to get the match.  And most advisers and studies today recommend participants defer at least 10% of income for an adequate retirement nest egg.

In early non-industrial societies, the risk of death was high at every age.  And only a small portion of people reached old age.  But now the number of centenarians (100 year olds) is projected to increase 10-fold between 2010 and 2015.

So if  you defer enough into your 401k or 403b.  And make proper investment selections without borrowing, you will be better prepared for your longer retirement!










As more information and ideas become available, the world becomes more complex because for every useful or relevant idea we come across we are faced with a corresponding amount of “noise” (not useful or irrelevant information). 

Nowhere is this more true than in the world of investing.  I continually come across highly intelligent people in various professions that appear totally lost when discussing their 401k or IRA or 403b, which makes the groundbreaking study “Determinants of Portfolio Performance” more important today than it has ever been.

Data was used from 91 pension plans for a 10 year period beginning in 1974 and the key finding was that “investment policy explained on average fully 93.6 per cent of the total variation in actual plan return”

To simplify this for 401k plan sponsors and participants – it means that your asset allocation decision (% allocated to stocks vs bonds vs cash) will account for the overwhelming majority of your result.  More Stocks = higher return with more volatility.  More Bonds and Cash = lower return with less volatility.

So at your next 401k or 403b enrollment meeting you can tune out the “noise” (ramblings about fund performance, tactical strategies, alpha and betas) – and stay focused on what’s important:  selecting an appropriate allocation and making sure you defer enough.



Maximizing 401k or 403b Contributions in 2015







If you entered the workforce in 1985 you would have been pleased to learn that 89% of the 100 largest companies offered their employees a defined benefit plan. (Guaranteed Pension In Retirement)

Fast forward to 2002….. only 50%!

Fast forward to 2010…. only 16%!!








With longer retirements and lower expected returns the shift from Defined Benefit (Guaranteed Pension) to Defined Contribution (401k OR 403b) should continue, making it more important than ever to maximize your 401k or 403b contributions.  Contribution limits have increased for 401k plans in 2015 but IRAs are unchanged.

Highlights include the following:

The elective deferral (contribution) limit for employees who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.

The catch-up contribution limit for employees aged 50 and older who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.

The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.