#Common Sense Retirement Planning Scam Full Explanation Of

Common Sense Retirement Planning Scam Full Explanation Of

That is categorically false.вЂќ This is the edited transcript of an interview conducted on Nov. AmericaвЂ™s retirement system вЂњis almost rigged against human psychology that says something has done well in the past, it will do well in the future,вЂќ Bogle told FRONTLINE. Basis from your paycheck to your investment options would not make sense.John Bogle is the founder of The Vanguard Group and a longtime champion of investing in index funds. While many of the changes in the act involve simple tweaks, the change in rules for inherited IRA funds, in particular, has complex implications for your estate planning.401(k)s are an important part of retirement planning, but theyre not perfect. For a full explanation of how the SECURE Act impacts your retirement planning, estate planning, and tax planning, speak to your financial advisor.

LetвЂ™s just start with the mutual fund industry. YouвЂ™ve seen a lot of things go by. As the years passed, I never contributed any additional money to the account because the account balance was declining.IвЂ™d like to cover some history, since youвЂ™ve covered some history yourself.

Many of the original mutual funds had nothing to do with the marketing of their shares. вЂ¦It began also as a business of trusteeship. They bought, basically, a basket of blue-chip stocks. So they werenвЂ™t doing all the trading like theyвЂ™re doing today.

Today the mutual fund industry is a business with elements of a profession, and too few elements at that.вЂќAnd when you had only one fund, think about your perspective. Marketing peripheral, even if the manager controlled the marketer.вЂњWhen I joined this business, it was a profession with elements of a business. Marketing was not in the middle of the picture. And so they were run by trustees who felt a certain sense, I think, of fiduciary duty to their investors. They all were in those days, in the late вЂ™20s and early вЂ™30s and into the вЂ™40s and really up to the вЂ™50s. We didnвЂ™t even think about marketing.You started a fund, middle-of-the-road fund.

So now the big firms, including Vanguard, have 150, 250, 350 different funds under one management. These private investment managers, trustees if you will, have been replaced often by giant financial conglomerates that bought into the fund business, or by fund managers that could see the profitability in it, that went public and had public investors.Of the 50 largest funds, I think the number is about six that are still privately held, and then thereвЂ™s Vanguard, which is held by its own shareholders вЂ” better than privately held, as it turns out.Then all of a sudden, instead of one fund that weвЂ™re looking after as trustees, weвЂ™re in the marketing business. It was a fund that we wanted to take good care of, and we knew what it was doing every minute of every day.Today all that has vanished. We lived and died with Wellington Fund. When I joined the firm in 1951, was the only fund we had.

ItвЂ™s a very different business.Why isnвЂ™t that a good idea? YouвЂ™ve now diversified into many different sectors, and thereвЂ™s a fund for everybody, and started a marketing machine that goes out and informs people of all the choices they have.The less choice the better. So we respond to the needs of the market and lose our focus on serving the investor rather than serving ourselves, to be truthful, and meeting the needs of the marketplace. ItвЂ™s a marketing business.We need one for this sector of the market, one for growth, one for value, one for emerging markets, one for energy, one for health care. You canвЂ™t track 300 funds or 200 funds.

Today the mutual fund industry is a business with elements of a profession, and too few elements at that.And by profession you mean a trust that has the interest of the consumer, the client, in mind, as opposed to a business that has its own interests in mind.Exactly so. вЂ¦When I joined this business, it was a profession with elements of a business. ItвЂ™s a good idea to watch over what youвЂ™ve already got and make sure you do the best possible job, because fads and fashions come and go. They went crashing down, and half of them, three-quarters of them, maybe 80 percent of them are now gone.So itвЂ™s not a good idea to try and feed the market. And you also start to get, in the marketing business, very extreme kinds of investment approaches.For example, in the Internet age, information age if you will, back in the late 1990s, people were starting Internet funds. Past performance does not recur.

So the money managers always want more, and thatвЂ™s natural enough in most businesses, but itвЂ™s not right for this business.In a sense then, marketing, competition, all of this, itвЂ™s the capitalist system at its core. Should you serve the owners of the management company, now public or owned by a conglomerate, which is to serve the interest of the fund shareholders?And cost is a crucial issue, how the returns of investing are allocated between investors and money managers or marketers. And when you could cut them back to help the fund shareholder, youвЂ™re faced with this no-man-can-serve-two-masters dilemma. It doesnвЂ™t take a genius to know that the bigger the profit of the management company, the smaller the profit that investors get, because theyвЂ™re both based on gathering assets and raising fees.So the more assets you have, the more fees you get.

Suppose it costs two percent вЂ” maybe a little bit high but in the ballpark вЂ” to gain that return. That means it should not surprise anybody that investors as a group divide up 7 percent. WeвЂ™re lucky enough to get a 7 percent return on the market. So costs are a crucial part of the equation.And a lot of people say, вЂњSo what?вЂќ Well, think about this. But when we talk about the market, weвЂ™re talking about the market return, and that return is allocated between investors and managers.So the relentless rules of arithmetic say essentially, this gross return that all of us earn in the markets, minus the cost of thank you, gaining that service вЂ”Fees, expenses, portfolio turnover inside of the fund, sales loads, advisory fees, operating expenses вЂ” take them all out, and the net return divided up by investors is whatвЂ™s left. And that is, we still think 2 and 2 makes 4, or 2 minus 2 equals zero.