401k Investing for Newbies and Nerds
There are 90 million American workers who have collectively own $14 trillion in their 401k accounts. They face both challenges and opportunities. The largest opportunity is that their accounts are investment accounts, not savings accounts, and for the past three decades, many have grown their balances in the low double digit range. Those with the highest return have constructed portfolios that focus on index funds and avoided target date funds.
The main challenge 401k owners face is that there are required to make their investment decisions by choosing from a limited menu of mutual funds. 42% of 401k participants have found that including index funds in their portfolio has provided them with results that optimize their investment experience.
The 90 million 401k account owners can be divided into 3 categories. The first are those who could care less about their money and are willing to just take what they are given. The second group, NEWBIES, are inexperienced in the investment process, but are willing to become engaged in the management of their hard-earned dollars. The third group, NERDS, are those who have a modicum of investment expertise and are willing to devote the time and energy to expand their investments skills.
My mission is to motivate 401k participants and their employer plan providers to become engaged in their account and then train them how to optimize their results.
I have a 62-years of stock market experience. I have been a stockbroker, finance professor and individual investor. I have no investment products to sell. All I have to offer are the objective observations of one who has been there and done that.
401k Investing for Newbies and Nerds
Season 1, Episode 24 Massive, Not Passive; The index Fund Revolution
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During my 62-year journey with Wall Street, I have been a witness to and a participant in, many significant events. I was there on Black Monday, 1987. I enjoyed the ride of the once in a lifetime 1990’s bull market. I chuckled my way through the dot.com bubble and cried in my beer during the subprime meltdown of 2007 to 2009. All of these events were profoundly documented and dissected by the financial median and their Wall Street cronies.
The subject of this incredibly insightful episode of my podcast is a less documented and dissected stock market development, the index fund revolution. The index fund revolution percolating for fifty years and just recently has become a force to be reckoned with.
Contrary to a plethora of urban myths, index funds are not totally passive in construction or application. I begin this episode with a discussion on why actively managed funds fail to beat the market. I conclude with a presentation on how index funds actively respond to the ever-changing market infrastructure and how 401(k) plan participants can use them to outperform the pros.