401k Investing for Newbies and Nerds
There are one hundred and thirty million American workers who collectively own $35 trillion in their 401k and related retirement accounts. The owners of these accounts face both challenges and opportunities. The largest opportunity is that their accounts are investment accounts, not savings accounts, and for the past three decades they have grown in the low double-digit range.
The main challenge 401k owners face is that there are required to make their own investment decisions by choosing from a limited menu of mutual funds.
These 130 million self-directed retirement account owners can be divided into 3 distinct categories. The first are those who could care less about their money and are willing to just let nature take its course. 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.
The mission of my podcast is to motivate and educate 401k NEWBIES and NERDS on how to optimize their 401k experience. I have a 62-year relationship with the stock market. I have been a stockbroker, finance professor and individual investor. Ten years ago, I appointed myself to the position of 401k guru extraordinaire. 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
Who Is Getting the Biggest Slice of the 401(k) Pie
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During a debate on the Federal budget, Herbert Humphry, the late, great Senator from Minnesota, said, “A billion here, a billion there, and pretty soon it starts to add up.” The same thing can be said for today's 401(k) program, except you need to change the B to a T.
According to the Bureau of Labor Statistics, there are 7,834 active 401(k) plans with 90 million participants. The value of their combined investments is in excess of $12 trillion. That's a number twice the size of the federal budget, and number that has the full attention of Wall Street’s bean counters.
What is unique about the 401K program is that it requires the individual investor to make their own investment decisions. But their choices are limited to a menu of mutual funds selected by a broker who is compensated by the funds they place in the menu. In this episode of my podcast, I will provide data on how the 401(k) pie is currently being distributed.