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lars23 said:   Am I the only who noticed that the woman who had her house underwater owned a MacBook Pro and the 31 yr old male economist had a 27" iMac?

Maybe these people should learn how to be more frugal with their lives first before focusing on retirement.


Product placement ads?

lars23 said:   Am I the only who noticed that the woman who had her house underwater owned a MacBook Pro and the 31 yr old male economist had a 27" iMac?

Maybe these people should learn how to be more frugal with their lives first before focusing on retirement.

I noticed. And, I also noticed that despite the fact that I make about an order of magnitude more per year than they do, they live in a nicer place than I do.

My take away from this was that Frontline was conflating the issues of fees, risk management, risk tolerance, the current recession & difficulty of the average person in understanding finance.

I agree that these are all issues to be discussed, but smashing them all together as one issue "Banks FTW!" isn't helpful.

I agree it did conflate too many things. On the other hand, those industry reps from prudential and goldman seemed like real bozos. I could have given better (albeit insincere) answers regarding fees and I am somewhat of a Boglehead.

LordKronos said:   SUCKISSTAPLES said:   LordKronos said:   SuperMxyz said:   hchen42 said:   SUCKISSTAPLES said:   DamnoIT said:   We have to credit frontline for the focus they gave on compounded interest and the erosion of gains that will occur over a 20 and 30 years horizon when left unchecked. Hopefully it has got people to look at what they have and reflect, adapt, and complain if needed.
I believe the example they used was a 50 year retirement horizon from starting work after college to retirement , but their example was that if youre paying 2% a year in fees and get a 7% avg return over those 50 years, your retirement account is going to be 66% less than if it didnt have those fees , and you just bought SPY . Basically they are saying you don't need to be a sophisticated investor trying to best the market by 1-2% a year - you can be a dumb lazy investor and simply watch out for fees


I am kind of skeptical about 66%. I'll probably visit their website tonight to see how they make this claim.
Meanwhile, I ran the number in Excel. I compound it on an annual basis. Base on the assumption the avg joe put in $100 at the beginning of first year, and each year, there's a $2 additional contribution. It means the second year, the contribution is $102, third year is at $104...

At beginning of second year, Joe would have $107 vs $105. Joe now contribute $102.
7% - ($107 + $102) * .07 = $14.63. At end of second year, Joe has $223.63 ($14.63 + $209).
5% - ($105 + $102) * .05 = $10.35. At end of second year, Joe has $217.35 ($10.35 + $207).
So the differences in balance increases from $2 in the first year to $6.28.

At end of 50 years, Joe would have $54,398.19. At 5%, Joe only has $28,674.16. While it's not 66% less, but it's quite a substantial amount. So yes, fees play a HUGE factor.


You have to take out the yearly contributions to see the 66%. It's pretty close to 66% if the market returns 5%-7%. With the yearly contributions added in, you're not giving the full 50 years to erode those contributions so it skews the number low for the mutual fund's actual take.



But that's exactly the point. Unless you get a huge inheritance at a young age and just invest it for 50 years, giving it the full 50 years is not representative of real results. Most people start with nothing and build it up slowly, year by year. Much of the value comes from compounding in the latter years.

Even if you use the example of contributing a little more each year , the account with the 2% fee still results in a retirement account balance that's almost 50% lower than one without fees


That was a problem I had with the way it was presented in the show. They talked about how that first guy calculated it (without going into details), then the narrator said "I didn't believe it at first, so I calculated it for myself". The way he presented it was starting with $100k and then subtracting 2% for 50 years, which ends up eating 66% of the value. That's just not the way most people will experience it.

So what you end up with is people walking away from the show with that 66% number in their head. Then they tell someone else about it, and that person finds the flaw in the math we are now discussing. They say "no, that's not realistic". Most people won't then try to figure out what the proper calculation is and say "ok, but it's still a pretty big number". Instead they'll just say "oh, ok, so that wasn't true" and then forget about the whole thing.


It's not entirely wrong if you figure on a FIFO method of withdrawing contributions and gains, working from 22-62 and death at 85. The fees and diminished returns continue through retirement.

I ran it with $100 contribution per year from age 22-62
5% return for fee laden fund
7% return for index fund
4% withdrawal method from 62-85

Results:

$71,402.15 total contributions + earnings for the 7% account
$28,483.77 total contributions + earnings for the 5% account

That's a 60% difference even after withdrawing 118% more in real dollars during retirement for the 7% account.

If you withdraw the same amount from both accounts in retirement, the difference is: 66.9%

I just noticed this was airing again tonight.

I saw a little bit of the show again last night and wondered about it in relation to Robert Reich's book "Aftershock". I'm about halfway through the book and one of his premises is that the middle class grew familiar with wage growth, safety nets of various sorts (pension and SS in case they didn't save enough for retirement, Medicare in case of catastrophic medical issues, etc). When the wage growth stopped, there was a sort of inertia that kept them spending… spending more than they could. The balance then came out of their homes, savings, reduced 401k contributions and CCs. It's hard to know if that's the real story, but it seems plausible.

It's fascinating how we all respond differently to adversities like this. Some give up, some get tough. I'm sure that those with a strong support system, great mentoring from solid parenting and those with a natural "dig in" approach to learning and coping have a much better chance of being the "get tough" group.

Really, as we look over the last 20 to 30 years as these things were happening (wage stagnation, housing bubble, decreased union representation, decreased pension coverage, more part time workers), it has been a pretty darned good time to prosper if you had the tools. On the other hand, if you don't have the tools and sort of go through life on inertia and without a plan, it was a pretty rough time.

I think also about education. To some extent our education system is a lot about memorizing facts, not about learning how to learn. If you learn how to learn, you are much better equipped to see these things coming and adjust your life and lifestyle to readily deal with them. If your education style is to memorize (seemingly) useless facts for regurgitation on a test you don’t want to take, then you are not too well prepared for seeing the shape of things to come. Get up, put on your blue vest, put in 4 hours. Take off blue vest, put on beige pants and red shirt, put in 3 hours. Remove red shirt, put on uniform and paper hat and ask if this is for here or to go. Rinse and repeat until you become assistant manager or get sick or your car breaks down.

I think the “excessive fee” stuff on Frontline is more a footnote than the keynote. I think the keynote is more about taking control of your own destiny, planning ahead and digging in. That said, some of the folks profiled went through some pretty rough situations that would be very difficult for any of us to weather. I think that’s a tiny minority compared to those that are just not prepared for retirement because the RV, flatscreen TV or smartphone data plan got in their way. I suppose the Frontline story is a bit sexier -- those darned Wall Street no-goods.

debentureboy said:   I saw a little bit of the show again last night and wondered about it in relation to Robert Reich's book "Aftershock". I'm about halfway through the book and one of his premises is that the middle class grew familiar with wage growth, safety nets of various sorts (pension and SS in case they didn't save enough for retirement, Medicare in case of catastrophic medical issues, etc). When the wage growth stopped, there was a sort of inertia that kept them spending… spending more than they could. The balance then came out of their homes, savings, reduced 401k contributions and CCs. It's hard to know if that's the real story, but it seems plausible.

It's fascinating how we all respond differently to adversities like this. Some give up, some get tough. I'm sure that those with a strong support system, great mentoring from solid parenting and those with a natural "dig in" approach to learning and coping have a much better chance of being the "get tough" group.

Really, as we look over the last 20 to 30 years as these things were happening (wage stagnation, housing bubble, decreased union representation, decreased pension coverage, more part time workers), it has been a pretty darned good time to prosper if you had the tools. On the other hand, if you don't have the tools and sort of go through life on inertia and without a plan, it was a pretty rough time.

I think also about education. To some extent our education system is a lot about memorizing facts, not about learning how to learn. If you learn how to learn, you are much better equipped to see these things coming and adjust your life and lifestyle to readily deal with them. If your education style is to memorize (seemingly) useless facts for regurgitation on a test you don’t want to take, then you are not too well prepared for seeing the shape of things to come. Get up, put on your blue vest, put in 4 hours. Take off blue vest, put on beige pants and red shirt, put in 3 hours. Remove red shirt, put on uniform and paper hat and ask if this is for here or to go. Rinse and repeat until you become assistant manager or get sick or your car breaks down.

I think the “excessive fee” stuff on Frontline is more a footnote than the keynote. I think the keynote is more about taking control of your own destiny, planning ahead and digging in. That said, some of the folks profiled went through some pretty rough situations that would be very difficult for any of us to weather. I think that’s a tiny minority compared to those that are just not prepared for retirement because the RV, flatscreen TV or smartphone data plan got in their way. I suppose the Frontline story is a bit sexier -- those darned Wall Street no-goods.


good post.

The Chase investment guy in the video was sweating. You could could see his eyes darting back and forth as he was freaking out inside and spouting non-answers.

The program didn't really offer any solutions --- it just dumped a pile of 'we're all doomed!' set to ominous music on the viewer and ended. What is the average person supposed to do after seeing that except panic?

They did prominently feature Vanguard but I just wish they had gone into more detail about the company's cost structure. Vanguard solves the broker and fee side of the equation, but doesn't help with people locking in their losses or cashing out retirement plans. They have put incredible pressure on the industry and I'm convinced they are the only reason anybody but Vanguard offers index funds. I am fighting a battle at my work to get our opaque and fee-riddled profit sharing into Vanguard but have not succeeded yet.



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