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
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.