401k Changes
- Thread starter cycloneG
- Start date
All I want it to put all my pennies with the guys in ads that say "Trader made $3 million from home betting on the next Amazon! Here's is lock for next year!"
As I understand it, this is much ado about very little for the time being. It’s unlikely that individual participants will be able to invest in PE like they have some sort of brokerage window or something. More so, it’ll probably look like Target Date Fund managers baking PE into their portfolios. Most participants probably won’t even know the difference. For large TDF managers with a lot of clout and big research benches, I think this is a good thing that could lead to better performance. Only danger is that most TDF managers are just chasing higher returns under the guise of extending glide paths, as they know that plan sponsors are making selections based on best returns or lowest fees. More risk = higher standard deviation (volatility). It’ll be even more reason to consider moving out of that target date fund if you’re nearing retirement. For all other investors with a longer time horizon, I think this could be beneficial.
I'm sensing a pattern here. It's almost like subsidizing risk could be a bad idea.
Many plans, including the one I use, basically have like retirement goal date funds. My 401k is basically in a "retire in 2040" bucket, which starts out more aggressive and then gets more conservative as you approach that date. I have some sprinkled in other places, but if I'm totally honest I have absolutely no idea what it's invested in.
If you are in a spot where you can defer $19,500 per year into your 401k plan, I wouldnt call you "poor folk".
I get that but it's not like Vanguard will not have lower risk options available that have little if no exposure to PE.Just select those options. Problem solved.
Unfortunately, I have. The fund lineup at a previous job was limited to actively managed funds, all with expense ratios north of 1%. After some employee pushback, the company managing the acct added one of Principal's S&P 500 funds, along with its 0.54% ER. A bit high IMO for tracking a common index.
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I wasn't saying they weren't. I was simply saying people should pay attention to their current funds more closely. Funds people have been in for years could take on more risk.
I'm surprised many plans have only the target date funds, but I use these as well in addition to some other funds in my plan. My guess is exposure to PE in target date funds will be highest in the far-out target date funds and get smaller as you get closer.
I just don't see this as some scary thing. It's one more way to diversify. I think it will take some time to get more knowledge built into the funds to effectively manage PE investments. I wonder if essentially these funds buy shares into pools of some sort to diversify within PE.
There are absolutely awful investments available to damn near every fund in every 401k out there as it is right now. Most funds could go buy some straight dogcrap muni or corporate bonds or garbage stocks right now and I don't see anybody freaking out about it. There are thousands of terrible options that fund managers can access right now.
For a vast majority of people they will have plenty of options for funds that avoid PE exposure altogether. These might take higher fees, but in the end the funds have to perform vs. their cost or they get destroyed. For the few that have such limited fund options that they can't avoid it, your funds have had access to terrible investments for years as it is.
yeah I’m not worried about it at all honestly. It’s not like those huge target date funds are going to go wild on private equity. It’s just going to be another option.
for a married couple that is $19,500 each for 401k. Plus you can do another $6k each in an IRA. And if it works for your situation you can do $7100 in an HSA.
That will get you to $58,100 per year. For a couple close to retirement the added limits for catchup contributions pushes that over $60k.
Median household income is right around $60k, so if you can't fit your investments into these limits not only are you not poor, you aren't middle class either.
There are lots of PE structures. There are PE mf's now. Most are useless and do not provide any alpha.
The inability of the "professional class" to not see its elevated position... elite position really... in our society is a really fascinating dynamic.
Most people are worried about making rent, not retirement savings.
True, but a lot of 401k investors aren't sophisticated enough to know what they're getting into. When I worked in the industry, we had some 401ks that offered self-directed brokerage (SDBA) through a third party. Even that was too complicated for the average 401k participant. Talked to a guy who just thought the SDBA firm was professionally managing his funds and he didn't have to choose any investments. Nope. All his money was sitting in the intermediary (sweep) account for over 20 years, earning exactly 0%.
He thought he was doing something really smart and totally f'd himself in the process because he had no f'ing clue what he was doing.
