13 Step Retirement Planning
Managing Retirement
Managing 401(k)
Asset Allocation for Retiree
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1. The 401(k)

Here's virtually everything you need to know about a 401(k) plan:

  1. It's one of the very best ways to save for your retirement. Few alternatives are better.
  2. There's a good chance that your employer will give you money for participating in the company plan.
  3. You should start contributing to your retirement plan as soon as possible.
  4. If you are more than 10 years away from retirement, you'd probably fare best by putting all of the money that you defer into an equity index fund.

You may need to read no further than this. Seriously.

We wanted to get all the information we could to you right up front because this stuff is pretty important. Studies show that if you're the average Internet reader, your attention span is so limited that you've probably already clicked over to some other website by now, although the big bright words in red at the bottom of your screen just might have kept your attention. Ha! Got you to look!

Therefore, in an ongoing effort to keep your fingers from tapping out www.gotta-be-more-interesting-than-401(k), we'll try to keep things moving -- beginning with mentioning again that there could be free money involved. Hey, we're not going to be dispensing any free money around here, but your boss just may be. If you can get some of that, various other studies show that you'll be happy you stuck around here for a couple hundred words.

To begin at the beginning, in 1978, section 401(k) of the Internal Revenue Code authorized the use of a new type of deferred compensation retirement savings plan for the benefit of employees of most private firms. Employees who participate in employer-sponsored 401(k) plans choose to defer part of their salary, and the employees themselves determine how much of their salary to defer and how to invest the money.

Participating employees choose to take home a smaller paycheck because there are several major advantages to saving for retirement through a 401(k), including:

Those first two or three might not have looked quite so interesting, but the free money item is an eye-catcher, ain't it? Before we get to that (we're saving the best for last) let's go over the first three, because they aren't so bad either.

When you defer compensation into an employer-sponsored 401(k) program, you immediately start paying less to Uncle Sam. The amount that you decide to defer is money that comes out of your paycheck before income taxes come out of it, and the money goes right into an account with your name on it. That's money that you're keeping out of the hands of the federal and state governments until you retire. (And, hey, you may decide to retire in some state where there are no income taxes.)

Just as important, because the taxes on the investment earnings are also deferred, you're not paying any taxes on anything that your deferred compensation earns until years from now when you're retired.

Another feature of some 401(k) plans is that Fools can lend back to ourselves some of the money that has been deferred for something important like buying a house or meeting expenses should an emergency arise. This is money that we can borrow from ourselves, rather than from a bank.

Fools, though, will borrow from a 401(k) plan only as a last resort. That's because we may change jobs before the loan is repaid. If we do, that loan is immediately payable with interest. Fail to come up with the necessary cash for that repayment, and there's a stiff price to be paid. Uncle Sammy will call the unpaid debt a "deemed distribution" from the 401(k). It will be taxed and -- assuming we're younger than age 59 1/2 -- penalized 10% as well for an early withdrawal of the money. Additionally, the interest we pay ourselves on the loan comes from money on which we've already paid taxes. But for 401(k) purposes, it will count as untaxed earnings. That means we will pay taxes on that money again in retirement when we make withdrawals from the 401(k). Bummer on both counts! Thus, while the loan feature is attractive to some, Fools think it's really something to use only when all else fails.

The best reason of all to contribute to a 401(k) or other deferred compensation plan is that many employers match a portion of the money deferred by their employees. That's right -- these employers are giving away money. Woo-hoo! Find out about whether your employer is providing matching contributions. If it is, you absolutely should commit yourself to deferring every dollar you can up to the amount that your employer is willing to match. How big a difference can employer matching make? Well, if your employer is matching your contributions dollar for dollar, you'll be, of course, doubling the amount of money put away for your retirement. And looking at this chart, that's a lot of greenbacks.

When can you afford to start deferring part of your salary? Take a look at this :

As you can tell, you really can't start too early. The number of years that your investment will be compounding is a huge part of saving for your retirement, but it's not the only part. Making sure that the money is invested properly is also important. And that's exactly the subject behind door Number Two

2. The Stock Answer

If you're young and will be making regular contributions to your 401(k) plan over a number of years, history shows that allocating all of your deferral into stocks will likely produce the highest returns.

[Ed. Note: That's pretty much the main point of Step 2. You can go on to read a bad joke or two and a couple of graphs that show how many hundreds of thousands of dollars might be at stake by putting your money into the right or the wrong allocation over time. Boring stuff like that -- so feel free to head on over to the Living Below Your Means discussion board if you know all this stuff already. Or you can skip to Step 3, which is a good bit, and features a guest appearance by Alex Trebek.]

For anyone new to handling her own finances, the array of investment choices provided by a typical 401(k) plan can be dizzying. Unfamiliar names jump out from the "asset allocation" sign-up sheet, including such obviously frightening concepts as "guaranteed investment contracts (GICs)" and the all-too-familiar sounding "bank deposit accounts." Sometimes there will be 20 or more choices offered, and usually employers offer little help in determining which allocation might be the right one for you.

The chart at the end of Step 1 shows the results that can be achieved if you invest that deferred pay and achieve returns, before tax, of 8% a year on your investments. To do better than that, or at least improve your chances of doing better than that -- it helps to understand the historical performance of the usual choices.

The typical investment choices in a 401(k) plan are likely to be:

Kidding. Llamas are not offered as an investment vehicle under any 401(k) plans. If your 401(k) is for some reason offering llamas, consider instead working for a company that is not run by somebody who's insane. Choosing to invest in llamas cannot possibly help your retirement. Now, back to the boring stuff…

Money-market funds and stable value accounts:The types of accounts offer secure ways to make sure that your savings grow at a limited rate. You won't make much off any money put into these vehicles, but you don't stand much chance of losing any either as they consist mainly of certificates of deposit or U.S. Treasury securities.

Risk: Low
Reward: Likewise low, around 4% a year

Bond mutual funds: These are pooled amounts of money invested in bonds. Bonds are IOUs, or debt, issued by companies or by governments. A purchaser of a bond is lending money to the issuer, and will usually collect some regular interest payments until the money is returned. Usually, the amount of interest paid -- the coupon -- is fixed at a set percentage of the amount invested. Thus, bonds are called "fixed-income" investments.

Risk: Ranges from very safe (U.S. Treasury securities) to somewhat risky (so-called "high-yield" or "junk" bonds)
Return: From 4%-8% a year

Stock or equity mutual funds: Such funds are pooled amounts of money that are invested in stocks. Stocks represent part ownership, or equity, in corporations, and the goal of stock ownership is to see the value of the companies increase over time. Risk: Stocks can and do lose 10-30% of their value in a matter of days. However, if you stick with big U.S. companies, you should be fine over the long term. Return: 10.7% average, with years as bad as -43.59% and as good as +52.83%.

There are any number of asset allocation models that propose putting as much as 20% of your money into cash or money market funds, and 25% or more into bond mutual funds. Those who are young and are putting money away for two decades or more should ask themselves whether the decreased volatility of such a model is worth the guarantee that it will not match the historical average annual returns of equities.

If you have a 401(k) plan administrator, she won't tell you how to invest your money, even if she knows that, historically speaking, stocks outperform other types of investments. Generally, plan administrators won't expose themselves to any legal liability and won't offer specific investment advice -- markets, after all, don't end up behaving in predictable ways all the time. Or any of the time.

We can't offer specific investment advice to you either, because we don't know your specific situation. (Our Foolish 401(k)s discussion board, however, is an excellent place for you to discuss your specific situation with the Foolish community at large.) But if there's a sufficient reason for someone who is decades away from retirement not to take full advantage of the fantastic possibilities that stocks provide, we don't know what it is.

All you've got to do to maximize your returns, therefore, is pick the right equity mutual fund. There's a good chance that your 401(k) has the right fund for you. Want to know what it is? Read on.

3. How to Pick a Winner

Of all of the questions that have confronted man since the dawn of time, the most oft-repeated and enduring one is probably, "What's for dinner?" A close second is, "Why isn't there anything decent on TV tonight?" Now, a new question increasingly crowds its way into mainstream conversation: "Which mutual fund should I go with?" (On a vaguely related note, you might not have known that the most frequently repeated line in movies is "Let's get out of here." Pay attention the next time you go to the movies -- it'll be in there. You may be wondering whether all of that is strictly relevant at this point. It may or may not be, but you'll have to keep reading to find out.)

Tens of thousands… no, hundreds of thousands… no, quite literally, millions of words have been written about mutual funds in recent years in various attempts to answer the question, "Which mutual fund should you go with?" A lot of those words are advertisements, meant to create the impression that some particular fund family or fund manager is the one to be investing your money.

There are articles on how to pick the winners. How to get in and out of which funds at which times. There are hundreds of articles on the merits of diversifying your portfolio by holding a number of different funds.

We're going to boil down all of the information that you'll ever need to know in as short a form as possible -- but, just to make it more fun, we'll test your linguistic abilities by presenting the answer in the form of a question, Jeopardy-style -- and in different languages.

The answer: "Over time, the absolute best performing type of stock mutual funds, bar none."

And the question:

In Portuguese, "O que sao fundos de deslocamento predeterminado?"

In German, "Was sind dynamische Investmentfonde?"

In Italian, "Che cosa sono fondi monetari di indice?"

In French, "Ce qui sont des fonds indiciels?"

In Spanish, "Cuales son fondos de indice?"

In pig latin, "Atwhay areway indexway undsfay?"

Okay. You really should have been able to figure it out from the pig latin. But if you couldn't, now imagine Alex Trebek is holding a card in his hand and intones, a little disappointedly, "I'm sorry. The answer we were looking for, 'What are…index funds?'"

The crowd murmurs with appreciation, as if they knew that fact all along. Actually, most of "the crowd" does know the answer at this point. That stock index funds, especially those that track the Standard and Poor's 500 Index, outperform the vast majority of actively managed equity mutual funds year in and year out is something virtually everyone involved in the mutual fund industry knows -- but it's not something that they'll tell you.

Oh. Sorry there. We might have gotten a little ahead of ourselves, because, even though you've now got the answer as to what type of fund to buy, you might, if you're Foolish, be wondering, "Aside from being the best performing funds, what are stock index funds. Tell us more."

Glad you asked. Stock index funds seek to match the returns of a specified stock benchmark or index. An index fund simply seeks to match "the market" by buying representative amounts of each stock in the index, rather than hiring a manager to make bets on individual stocks or sectors or investment strategies. Index funds do not even attempt to beat the equities market, they simply seek to come as close as possible to equaling it.

Sound simple? Sound like aiming too low? It isn't. The majority actively managed equity mutual funds over time lose to the market averages. Many of the funds that do beat the average market return typically do so for only a very short period of time, and then quickly reverse course.

Stocks, as measured by the S&P 500 Index, have historically returned more than 10% per year since 1926. Before moving on, one thing should be made clear. A lot of people think that the most popular index, the S&P 500, is the only index. It isn't. Index funds that match the broader market such as the Wilshire 5000 are also excellent places to be invested. There are even index funds that match the returns of foreign markets, though such funds have not been very good places to be invested of late.

Hey, maybe we haven't convinced you that equity index funds are the way to go. But did you know that if you listen to people who make it their careers to know everything about individual mutual funds, you'll potentially cost yourself maybe half (maybe more) of all the money you stand to save in your 401(k)?

Sound impossible? The scary story of what happens to those who listen to the experts is but one click away.

4. The Expert's Secrets

The following, although Hitchcockian in the terror that it will cause some, nevertheless has to be faced.

A typical 401(k) plan might offer five or more different stock mutual funds. The chances that you, dear reader, will pick one or, even less likely, a combination of more than one, that will outpace the performance of a broad-market index fund can perhaps be measured by referring to a June 30, 1998, Wall Street Journal article. That article reports the results of a 1992 challenge that the Journal gave to five very experienced mutual fund "experts." These experts were asked, "Out of all the mutual funds in the whole great big wide world, if you had to pick one to get the highest rate of return over the next 10 years, which would it be?

These were the "experts" mind you. These were individuals who make very highly paid careers out of sounding pretty good when they answer this kind of question. These were the Wisest of the Wise. Now, as the Journal noted, the 10 years isn't up yet, but six years ought to tell us a little bit.

As it turns out -- it tells us a lot. Tells us everything, some might argue.

Out of the five, none picked a fund that outperformed the S&P 500 Index, and two picked funds that were, basically, total disasters. While the S&P 500 returned 196% over the time that was measured, the five experts picked funds that returned between 27% and 192%. The average return of the five was 133%.

Of course they never learn either. When asked to pick new funds for the next 10 years, each of the "experts" who hadn't picked an index fund went out and picked a new actively managed fund. We'll come back and check how they're doing, from time to time.

To be fair, a few things need to be pointed out. One of the experts did pick an index fund, although he picked a fund which indexed the total stock market of about 6000 stocks, and that fund came very close to matching the S&P 500 return. That index fund was not the very best performing of the experts' picks, either, because one of the funds did outperform it. So it certainly is the case that some (a very, very few) actively managed funds do outperform some index funds over extended periods of time. But even when they do so, it's by very little. It's really just not worth the risk of severe underperformance.

The statistical evidence proving that stock index funds outperform between 80% and 90% of actively managed equity funds is so overwhelming that it takes enormously expensive advertising campaigns to obscure the truth from investors. In fact, one of the reasons that actively managed equity funds underperform stock index funds is because they are spending so much money to advertise -- money that otherwise would be invested on behalf of the mutual fund shareholders.

Of course, the average domestic managed fund doesn't actually perform nearly as poorly as the ones picked by these experts. The average actively managed domestic equities fund trails the average passive equity index fund by about two percentage points per year, so just picking funds by throwing darts would almost certainly have served you much better than listening to these experts.

Even if you're convinced that an S&P 500 index fund is the right one for you, there may still be a problem. What if your 401(k) doesn't offer an index fund? Remarkably enough, according to a 1996 study reported by the Department of Labor, most 401(k) plans don't include an equity index option. If that's true of your plan, then start lobbying your employer to get one, Fool. Rally your fellow employees to the cause by sharing these statistics with them. When a group of you persistently asks for this option, few employers will continue to deny it. It's your money and it's your retirement, so don't be afraid to ask for what you need to build that stash. The old adage about the squeaky wheel is true, so just hang tough and sooner or later your employer will see the light of day. To assist you, we've drafted a letter to your plan administrator that clearly spells out the arguments in favor of indexing. Customize it, print it out, hand it to your employer and keep squawking until there's an index fund made available to you in your 401(k).

If your plan does offer an index fund, woo-hoo! You may just decide you don't need to read any further. If you currently have money in actively managed mutual funds while there is an index fund available, consider saying to yourself, as so many movie characters do, "Let's get out of here," and transfer that money to an index fund.

If your plan, however, is one of the approximately 58% that doesn't offer an index fund (or if you think that you're really smarter about picking funds than the self-anointed experts) read on. We'll show you how to pick the funds that are closest to an index fund.

5. Index Fund Understanding

The line you're in at the toll booth is always the slowest. Somebody else always wins the lottery. The dog has, again, eaten that sandwich you took your eye off for a second. Yup. Life is unfair sometimes. (But what are you doing playing the lottery in the first place? Sure, we sympathize with you about that problem with the toll booths, and I think we've all been there with the dog, but, c'mon, the lottery?)

Sorry. Back to the issue we were discussing, which was…

What should you do when your 401(k) plan doesn't include an equity index fund? That isn't fair after all, is it?

Well, no, it isn't fair, but there is a way out. You need to find a fund that is most like an S&P 500 index fund. Essentially, you are looking for a fund with the following features:

Studies show that virtually all of the difference in return between managed funds and index funds is attributable to the higher costs imposed by actively managed funds. A low expense ratio is simply the most important reason a fund does well. If you can't choose an index fund, make sure that you pick a fund that does not impose significant costs -- and all the costs matter.

Management fees are annual fees charged by all funds, and you want to maker sure that management fees are as low as possible. Index funds typically charge about two-tenths of one percent of the assets, and actively managed funds currently average about 1.6% per year. The average fee, by the way, has actually been climbing in recent years.

Any fund that has management fees above 1% per year can be expected to underperform the total returns offered by an index fund.

You also want to make sure that you aren't paying any sales charges. Sales charges come in various stripes, also known as loads or commissions. There might be a charge for buying into the fund (a front-end load), or selling the fund (back-end load, deferred sales charge, or redemption fee). Avoid all of these. Some funds have back-end loads that are reduced the longer you hold the fund. Best to avoid all of these. If you have to buy an actively managed fund, buy the fund with no sales charges at all. Funds that normally have sales charges sometimes waive them or have reduced sales charges for large 401(k) accounts.

12b-1 fees are really remarkable. These are yearly charges that the fund takes out of your money so that it can market itself. Enough said. You don't want to be paying those at all. Any fund with a 12b-1 fee above 0.25% can probably be excluded.

Turnover measures how long a fund is holding onto the stocks it buys. The longer a company holds onto a stock, and the less trading it does between different stocks, the lower the turnover will be. Since a fund incurs costs every time it buys and sells stocks (just like you do), the lower the turnover, the lower the transaction costs incurred by the fund. Ideally, Fools like to see funds that practice the "buy and hold" method of investing -- those funds are the most index-like. Funds that have a turnover of 100% are essentially buying a completely new set of companies every year. Turnover should ideally be substantially lower than the mutual fund average of about 80%. Index funds have turnover as low as 5%.

A mutual fund that has an established track record is less important than you would think. Studies show that measuring performance over two decades or longer, 99% of funds that outperform the market in one decade revert to the mean in the next decade. Past performance really isn't an indication of future results. However, a fund that dramatically underperforms the market is more likely to keep doing so. How about a fund that's existed for less than five years? You don't know what that fund is going to do. And if a new fund manager has recently switched into the fund you're considering, that's pretty much a brand-new fund. Let her experiment on other guinea pigs for five years before you give her any of your money.

Make sure to check out the consistency of the fund's returns. You're looking for funds that not only have shown good returns on the whole, but ones that do so on a consistent basis, rather than having great runs followed by lousy ones. Most funds that claim to have outperformed the market over a 10-year period really had most or all of their truly good performance when they were young and small. Once the fund had attracted a couple billion extra dollars, the fund, usually, started performing more in line with the market.

Phew! All that to go through instead of just buying an index fund? Wouldn't it be better to just get an index fund into your plan? It just might be.

6. Nest Egg Building

Passing up the immediate gratification that comes from taking home a higher paycheck may be a no-brainer when your employer is giving you free money as part of the bargain, but should you consider deferring more than the amount necessary to get the full match? To tackle this issue we recommend, if at all possible, actually using a brain (yours, preferably) because now there might be some slightly harder choices to make.

Under law, the maximum amount that you can defer into a 401(k) plan is $11,000. Under most plans there is also a percentage limit, usually about 20% or 25% of your salary. Therefore, if you earn $40,000 a year, and your employer allows deferrals up to 20% of your salary, your potential deferral would be capped at $8,000. If your salary were $60,000, the cap would move up to the $11,000 maximum permitted under law.

For many people, deferring every dollar that they can afford through a 401(k) plan will make a lot of sense. But what if you feel that you can do better investing outside of your 401(k) plan? After all, there are hundreds of thousand of words written every day around Fooldom on how to beat the market returns, and here we are saying that the choices in your 401(k) plan are very unlikely to provide a real opportunity to outperform the market.

As explained before, the advantage of participating in your 401(k) is that you defer paying taxes for years on the deferral amounts. If, for example, you earn $30,000 per year and contribute 5% of your salary to a 401(k), you would save about $225 a year in taxes. That $225 a year is money that you're investing, rather than giving to Uncle Sam.

Additionally, your investment earnings are growing under a tax-deferred status. To achieve the same results by investing after-tax money that you would achieve with pre-tax money matching the historical returns of the S&P 500 Index, you would need to realize annual returns of well above 11%, as demonstrated quite thoroughly in Step 4 of the 13 Steps to Foolish Retirement Planning.

Even if you do believe that there are ways to invest your money that might outperform the returns of an index fund in a 401(k) plan, you should, in the words of the Delphic oracle, "Know thyself." Are you somebody with the discipline to follow through on good intentions? The beauty of the 401(k) deferrals is that you not only are making regular investments, but you do so automatically, every paycheck -- before you have a chance to touch, smell, taste, or roll around in that money. For many, that alone will ensure that their retirement funds are accumulating in a better manner than if active work were involved to invest the money after cashing their paychecks.

One other tax-deferred plan to keep in mind when setting aside money for deferrals is the Roth IRA. Making sure that you save enough to make a full $3,000 a year contributions to a Roth IRA is always a good idea. The advantage to the Roth IRA is that once you've put money into it, you won't ever have to pay taxes on the earnings. While 401(k) contributions avoid taxes at the beginning and defer them until later, the Roth IRA allows all of your investment income to grow without incurring any tax liability whatsoever. The other advantage to the Roth is that if you've opened up an account that doesn't charge you any money in annual maintenance fees, you're actually doing better than you would with the same amount in a 401(k), because most 401(k)s do charge slight (but important) fees on your savings.

That's right. There are fees everywhere, and just as mutual funds within a 401(k) plan charge an annual management fee, the 401(k) plan itself is tacking on charges that your employer (or more likely you) are going to be paying every year. How to keep those fees under control is the next to the last step you need to know before you can stop worrying about what to do with your 401(k) plan savings.

7. Fee, Fee, and Fee

One thing that is almost always overlooked in assessing the value and the rewards of a 401(k) plan are the plan administrative fees that are charged to the participants. The largest enemies to your long-term savings through a 401(k) plan are excessive fees by the selected mutual funds. Another set of fees also is circling around your retirement funds, nibbling away at your savings and nearly invisible to the naked eye. These are the fees associated with running the 401(k) plan itself.

Participants in 401(k) plans are currently not adequately informed about the fees associated with the day-to-day operational costs of running increasingly more complex plans. These fees include the costs of mailings and other record-keeping, telephone voice response systems, daily valuation services, educational seminars, retirement planning software -- and all the rest of the clutter.

For instance, some 401(k) plans allow participants to change their asset allocations every day if they so desire -- i.e., switching between different mutual funds however much they want. Other plans only allow changes every three months. Since the provision of any service, regardless of whether it is really something that the participants would want, exacts a price, there are real costs to the provision of every service in a 401(k) plan.

If you have the opportunity to help your office select a plan provider, it is well worth keeping in mind that having too many mutual fund choices is a cost, not a benefit. Similarly, the opportunity to move money into, out of, and between different funds is also a cost, not a benefit. The simpler the plan is, the less it will cost to maintain.

Until recently the administrative costs were generally assumed by the employer. Now, however, according to the Department of Labor, there has been evidence of a trend to shift expenses to plan participants. While these plan administration expenses are generally not too high (generally less than 0.5% of assets), they are growing, and participants should keep an eye on them. Further information on the subject is available from the Department of Labor, which offers this handy checklist of questions to ask in order to gather information about the fees and expenses paid by your plan:

This is a pretty good list to consider, though we're a tad confused about what is meant by #7. Since tracking a market index fund is the best that your plan can reasonably hope to provide, we're not quite sure what is meant by "a higher level of investment management services."

Reading up on more issues related to the management fees at the site that your tax dollars built, will be helpful if you're looking for more details.

If you're not terribly interested in wading through a 70-page document written by government bureaucrats though, click ahead, and we'll sum up all the relevant 401(k) info in about half a page.

8. The Whole Shebang

Time for a quick review of what you really need to know about your 401(k) plan (for those of you who skipped that stuff in the middle).

Leave your money in the index fund for a couple of decades, don't worry about it, and go out and enjoy life. That's pretty much it. There isn't anything too much more complicated about 401(k) or other deferred compensation plans that you really have to know. The purpose of a 401(k) plan, ultimately, is to take some of the worries about retirement out of your life.

So use it!

9. The Letter

Dear [Benefits Director],

I have reviewed the investment options for our company's 401(k) plan, and I wish to request that a passively managed S&P 500 equity index fund be added to our plan's choices. The available studies relating to mutual funds reveal that over any ten-year period of time, an S&P 500 index fund will likely outperform the vast majority of actively managed funds.

The improvement in returns that we employees can expect from the selection of an equity index fund as opposed to the average high-fee actively managed equity mutual fund is truly dramatic. I quote the following excerpt from John Bogle's piece, "The First Index Mutual Fund" available for your review at
#Prologue. In it, Mr. Bogle writes,

"What difference would an index fund make over 50 years? Well, let's postulate a +10% long-term annual return on stocks… If we assume that mutual funds costs continue at their present level of about 2% a year, an average mutual fund would return 8%. This 2% spread is very close to that of the past 15 years, during which the Vanguard 500 Portfolio provided a 2.2% margin of return over the average equity fund (or, more accurately, the better performers that survived the period[.]…[E]xtending this compounding out in time on a $10,000 initial investment, the market (at 10%) would produce $1,170,000 after 50 years; the mutual fund (at 8%) would produce $470,000. The difference in return between the two -- $700,000 -- is an unbelievable 70 times the initial stake of $10,000.

"Looked at from a different perspective, our hypothetical fund investor has earned $1,170,000, donated $700,000 to the mutual fund industry, and kept the remainder of $470,000. The financial system has consumed 60% of the return, the fund investor has achieved but 40% of his earnings potential. Yet it was the investor who provided 100% of the initial capital; the industry provided none. Confronted by the issue in this way, would an intelligent investor consider this split to represent a fair shake? Merely to ask the question is to answer it: 'No.'"

While I may not be with our fine employer 50 years from now, I do intend to defer more than $10,000 in our 401(k), so I believe that the inclusion of an S&P 500 index fund in our plan would likely make a very significant difference in the retirement that I can look forward to.

Given the fact that I understand that I'm looking at perhaps $700,000 or more as a consequence of your reaction to this request, please understand that I intend to be persistent.

But only if I have to be.

Thank you for your attention to this matter.

Very truly yours,

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