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, and  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.



How to keep 401k or 403b fees reasonable






A married couple in the USA age 65 in decent health faces about a 50% chance that one of them will live until age 95.  Which means they need to plan for at least 30 years of inflation adjusted retirement income.  And with Corporate pensions and government entitlements on the decline, the 401k and 403b plan – for better or worse – will play an increasingly important role in generating this income for many Americans.

And there is so much noise and confusion out there about how to set up these plans and which investments to use but it’s really very simple (at least the investment part of it): Defer enough salary (recommended amount is at least 10%), maintain an appropriate asset allocation with sufficient equities and keep fees reasonable.

So regarding that last point – if you are a sponsor of a 401k or 403b plan, here are 3 steps you can take:

Confirm receipt of your 408(b)(2) disclosure for each covered service provider (“CSP”):  The DOL’s section 408(b)(2) rule requires service providers to provide specific information to assess the reasonableness of fees and identify conflicts of interest.

Examine this notice for accuracy:  Theses notices are often inaccurate and/or incomplete.

Make sure your fees are reasonable: This is done by either “bench-marking” your plan against competitors or  simply shopping your plan to a few other carriers and keeping the proposals in your files.

Keeping your 401k or 403b plan fees reasonable – along with consistent and robust participant education and advice – will help your participants face 30 or more years of retirement with greater dignity.



3 Ways To Tell If You Have A Good 401K Plan







401k and 403b plans have gotten a bad rap in the press – especially lately.  As the 401k replaces the defined benefit plan as the primary retirement savings vehicle for many, we are learning that many of these plans have high fees and under-performing funds.  And because the 401k or 403b has no guarantees, this is of concern.  But like anything else – some plans are better than others; so here are 3 ways to tell if you have a good 401k plan or not:

1) It has a match: A match is free money for participants – so obviously that is one sign of a good 401k plan and will improve retirement outcomes.  The most common match formula is: 50% of contributions up to 6% of salary.  Does your plan have a match?

2) It has a broad choice of low cost funds: Less expenses means more money at retirement for the participant, hence better outcomes.  A good way to tell if your plan has a broad choice of low cost funds is to find out if index mutual funds and exchange traded funds are in the line-up.  Does your plan offer index funds and exchange traded funds?

3) It has good service providers: The expenses in the plan that cover administration and investments should be buying you good service – from recordkeepers (on administrative and plan design matters) and from financial advisers (for participant education and advice).  Do you notice recordkeepers and financial advisers visiting the company on a regular basis to provide service? 

As the amount of years spent in retirement increases – along with healthcare and custodial care costs – retirement planning is an increasingly important task.

And making sure that you have a good 401k or 403b is a nice place to start.



Getting Your 401k Allocation Right






As an advisor to individual investors and 401k plan participants, I am often perplexed by the way participants approach their investment selection in their 401k or 403b plan.  Some participants will simply mirror what their HR director does, while certain studies have shown that employees tend to just “equally divide” contributions among choices.  So if there are 4 fund choices, 25% will end up in each and if there are 5 choices, 20% in each and so on.  The names that are given to 401k investment choices don’t help much and in fact tend to confuse matters:

Capital Builder?  World Growth?  Dynamic Flex 1vx?  Constellation?  Magellan?

What do those names mean?

A 401k participant needs to get through the noise and to the signal – (what’s most important) and in the context of  401k investment selection, it’s the overall asset allocation that matters most.  That is –  the % mix of Equities (Stocks), fixed income (Bonds) and cash.

A clean and strategic way to do that is by selecting a “manged” or “target date” fund which should reveal clearly what the asset allocation mix is.  If a participant wants to mix and match investment choices such as Mutual Funds or ETFs  to create their own portfolios – that’s fine - as long as they are aware of what the overall asset allocation is.  (An allocation of 74% stocks will perform dramatically different than 38% stocks but it might be hard to know where you are by simply selecting funds with generic fund named after stars and cruise ships that were designed for marketing purposes, not transparency)

You can figure out – and continually monitor – your overall 401k allocation with assistance from your 401k financial advisor and/or the use of a software program from Morningstar or something similar.


3 Strategies To Boost 401k Plan Participation







About 1/3 of eligible participants do not participate in their employer’s 401k plan. (Source: department of labor).  As defined contribution plans continue to replace defined benefit pensions, increased participation benefits both employer and participant – so here are three strategies to help boost 401k participation:

1) Auto Enrollment:  In the great book “Save more tomorrow” the author points out that of all the methods that can boost participation – nothing compares with auto – enrollment.  The author draws a comparison between organ donations and 401k participation by pointing out  that countries who automatically have their citizens become organ donors and require  them to “opt out”  have significantly greater participation due to “inertia” ..and the same holds true with participation in 401k plans.

2) Consistent face to face investment education and advice:  Employees need a financial advisor to meet with participants regularly, not just at the initial enrollment meeting.  Plans that have an advisor who visits in person on a regular basis blow away the participation rate of those that do webinars – or even worse have no financial advisor at all.

3) Adequate and cost effective investment lineup:  A broad array of mutual funds and ETFs will encourage better participation.  But not too many choices; somewhere around 9-12 stand alone choices along with a menu of target date (Managed) funds is ideal.  Also – keeping the fees down with index funds and ETFs (and letting clients know the fees are reasonable) will help because a lot of bad press about excessive 401k fees may keep people away from the plan.

Increased 401k participation is a WIN – WIN - WIN for employer, employee and advisors – so consider the impact that auto enroll, face to face advice and a great investment lineup might have.