Wall Street for Dummies
Ninety million American workers actively participate in their companies 401(k) plan. Collectively, they have $14 trillion dollars invested in these plans. Regulations require them to make their own investment decisions by selecting from a list of mutual funds prepared by an investment professional who is compensated by the mutual funds they choose to include on the list. Last year, American workers paid $275 billion dollars in fees to have Wall Street manage their mutual funds. Over the course of the next decade is figure will exceed $3 trillion dollars.
There are those 401(k) participants who choose funds with minimal fees and superior performance. Others choose funds with high fees and subpar performance. The mission of Wall Street for Dummies is to educate 401(k) plan participants on the impact of fees on mutual funds’ performance and provide them with commentary on how to use the cost efficient and best performing funds.
I have a 62-year relationship with the stock market. I have been a stockbroker, finance professor and individual investor. For the past ten years I have conducted my professional efforts as a free-lance stock market pundit. I have no investment products to sell. All I to offer are the objective observations of one who has been there and done that.
Wall Street for Dummies
Season 2 Episode 2 All That Glitters Is not Gold
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During my second junior year in college, I took a Shakespeare class. I was a business major and wore a coat and tie to class. In a roomful of liberal arts majors, it was obvious that I was the class nerd. The only line I can remember from the lectures was, “All that glitters is not gold.” Full disclosure: I had to Google “Shakespeare” to make sure I had the proper quote. It comes from the Merchant of Venice and is a warning against being misled by outward appearances.
But getting back to Shakespeare’s all that glitters is not gold thing. There are 8,314 mutual funds available to the investment public. In calendar 2025, just 11% of these 8,314 mutual funds beat the market. Their average gain was 13.5%, barely half the 25.7% total return of the market.
Which begs the question? What is the market? The gold standard for the market is the S&P 500 and the benchmark most quote by the financial media. It consists of 500 publicly traded companies selected by a committee hired by the index’s owner, Stand and Poors. It is the most comprehensive of the major indexes and includes 92 percent of all publicly traded companies.
Of the 8,314 mutual funds produced by Wall Street, 73 percent are actively managed funds, which means that they have a professional manager who trades the stocks in the fund’s portfolio in order to increase its performance. The remaining 27 percent are passive index funds whose object is to mimic the performance of a specific market index. Index funds don’t trade in order to enhance their performance thus eliminate all trading cost and the expense of a fund manager.
In 2025, only 914 of all the mutual funds equaled or beat the market. Of that 914, 177 were index funds who mimic the S&P 500. Of the remaining 737 funds, only 112 made the high-performance list in 2024. All 77 S&P 500 funds were on the winners list in 2024, and the year before and the year before, and so on.
A 401k account is an investment account not a savings account. But investing is not a one size fits all proposition. Those who manage their 401k who manage their 401k wisely will get the gold. Those who take a casual approach to the management of their 401k will end up with shiny pyrite, also known as fools’ gold.