Most people believe that a 401k is beneficial. This type of investment can provide the same percentage of a retired person’s income that pensions once provided. However, there are millions of people haven’t a clue whether their 401k plan is a good one. Many have inadequate funding options and excessive fees.
It could end up causing you to lose hundreds to thousands annually. The costs associated with a plan will range, making it a complicated ordeal to find out what you are paying. According to an AARP survey, there are not many who catch that they are in fact paying someone to invest into their plan.
What Do the Fees Look Like?
There is a lot of confusion around the charges these plans can have. The largest of three standard fees is known as the investment management fee. The costs can vary from up to 2% to 3% of assets for actively managed funds down to 10 basis points for institutional shares of index funds. There is also a plan administration fee paid to businesses that run day-to-day management of the plan. Expect to pay around $100-$200 if it’s out of pocket. The last of the three is the 12b-1 charge – a recurring fee used to fund commissions for salespeople and brokers.
On top of these three main fees, count on an individual service fee for additional services, like loans from your 401k or for using a brokerage window.
David Walters, CPA and certified financial planner with Palisades Hudson Financial Group said that altogether, the charges can range from 50 basis points (which is half a percent) up to 3%. He believes people should be suspicious of those that ask over 1%. He also noted that it could make a significant difference in what workers get to spend when they retire.
A report by the liberal think tank Demos found that married couples who invested consistently and never made withdrawals would have lost up to $154,000 in fees, about a third their entire savings.
Are There Any Stats?
It may not always be possible to get the best plans out there. Small companies, in particular, have more fees as they don’t have any negotiating leverage to reduce them. They often do not in-house experts to research plans and find the best deal for the employees.
Yoav Zurel, CEO of FeeX, says one shouldn’t assume that working for a large company means you will have minimal fees or optimal investment options. He adds that only about 40% of the largest companies have optimized their 401k.
The good news is that according to BrightScope, 401k charges have been dropping annually since 2009, and the pattern is expected to continue.
This is most likely because more people are learning to pick the best plans possible for them. Brooks Herman, Bright Scope’s director of research, said that it’s because of the rise in plan sponsor awareness. In 2012, the Department of Labor mentioned that companies are to disclose fund fees to their customers each year.
Rick Meigs, president of 401khelpcenter.com, said that even with that, few people ever take the time to read over their plans. Still, he commented there is always that one individual from the pool of employees that will take the time to read it and when they take the time to do go through it, it benefits the majority.
Is it Possible to Make a Bad Plan Work?
FeeX has researched and analyzed annual reports and individual plans. They suggest alternative investments within each plan to lower charges.
Even with new disclosures, some workers may still be stuck with less than ideal plans. If you are in that predicament, Walters believes it’s best to find workarounds to place yourself in a better financial position.
You can begin by using index plans as they often have lower charges and 88% of plans include them. However, don’t think that’s the only answer. S&P 500 funds can charge 80 basis points when you can get the same thing from Vanguard for only five basis points. Nearly 50% of 401k plans have brokerage windows that allow you to invest in any mutual fund, exchange-traded stock or fund which is available at any brokerage. Doing so may also help with lowering costs as you have access to an entire universe of low-cost fund options and exchange traded funds.
It’s time to start taking financial matters into your hands. Start talking to your spouse about it if you are married, and sit down with your boss. Talk to your boss about improving the plan for the company as a whole.
If you are currently working in a small business, the company owner will likely be the plan’s biggest participant and shouldering a majority of the charges. Keep that in mind and remember to tread gently when bringing up the topic. Zurel, of FeeX, says you should never accuse your employer of anything, and instead, believe that they are doing the best that they can. After all, they too have the same interest as you and would like to have lower fees themselves.
The Next Generation of Sin Stocks to Ride Out a Bear Market
While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.
They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.
Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.
The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.
Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.
And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.
Here’s a short list of “next gen” sin stocks that we expect to do very well.
While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.
Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.
Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).
Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.
Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.
Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.
Social Media Platforms
If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.
Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)
While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.
Dow and S&P Post First Back-to-Back Gains Since February
While it may be a small victory, the Dow Jones Industrial Average and the S&P 500 managed to post their first back-to-back positive days since February.
The Dow closed 2.39% higher, gaining 495 points to close at 21,200. The S&P was up 1.15%, closing 28 points higher at 2,475.
The Dow was helped by a massive 24% rally in Boeing shares and a 9.2% gain for Nike stock.
The Nasdaq slid 0.5% yesterday as the tech-heavy index saw Facebook, Amazon, Apple, Netflix and Alphabet all close in negative territory.
Stock gave back part of their gains right before the market closed when Presidential hopeful Bernie Sanders said he was ready to “put a hold” on the $2 trillion stimulus bill currently working its way through the Senate.
Sanders is looking for tighter restrictions on companies receiving aid from a taxpayer pool of $500 billion.
While the market has used the likely passage of the stimulus bill as a catalyst for the massive rally over the last two days, at least one investor says the stimulus is reassuring Wall Street, not Main Street.
“What the fiscal and monetary stimulus has done is to allow the market to recover,” said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago. “It’s not because the main street community is coming back. It’s the institutional crowd being able to say, ‘the world isn’t falling apart’.”
Others are worried that the euphoria over the stimulus bill is driving the market higher in the same way it originally drove the market down.
Adam Crisafulli, founder of Vital Knowledge, said in a note:
“The stimulus measures will continue acting as equity tailwinds as they seep into corners of the credit market presently locked.”
But he added that the market “is clearly moving much faster than underlying fundamentals and just as sharp declines on prior sessions exaggerated economic conditions, the rebounds will too.”
On Wednesday, former Federal Reserve Chairman Ben Bernanke said that he expects the U.S. economy will have a quick rebound after a “very sharp” recession.
“If there’s not too much damage done to the workforce, to the businesses during the shutdown period, however long that may be, then we could see a fairly quick rebound,” Bernanke said while appearing on CNBC’s Squawk Box.
He added “This is a very different animal from the Great Depression” which he said “came from human problems, monetary and financial shocks. This has some of the same feel, some of the feel of panic, some of the feel of volatility that you’re talking about. It’s much closer to a major snowstorm or a natural disaster than a classic 1930′s-style depression.”
In order for the markets to avoid a “snowstorm” turning into a recession, Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said there are four “components” needed for stabilization:
″(i) A sign that the policy intervention is sufficient to prevent severe second- and third-round economic shocks; (ii) A sign that the infection rate is reaching a peak; (iii) A sign that the economic downturn may be slowing; and (iv) Cheap valuations,” Oppenheimer wrote in a note to clients. “In reality, we believe it will be a combination of these, and in some cases there are already signs these are in place.”
Stocks Soar During Historic Day For The Dow
Stocks soared yesterday on news that the $2 trillion stimulus bill was “on the five yard line” and close to be finalized by both the Democrats and Republicans.
The stimulus package will provide relief for companies that have been caught up in the economic fallout from the coronavirus outbreak.
Delays in the bill’s passage were due to the Democrat’s concerns that the bill favored Wall Street over Main Street.
House Speaker Nancy Pelosi appeared on CNBC and told Jim Cramer that there is “real optimism” of a stimulus deal being reached. “We think the bill has moved sufficiently to the side of workers,” she said.
After news broke of the deal nearing completion, stocks went on to stage a historic rally that lifted all three major indexes.
The Dow Jones Industrial Average climbed 11.37%, or 2,112 points, for its biggest one-day percentage gain since 1933 and its largest point gain ever. The S&P 500 rallied 9.38% for its best day since October 2008 and the Nasdaq climbed 8.12%.
With the stimulus bill close to passing and the markets staging a historic rally, some were willing to look ahead and predict the end of the bear market.
Michael Novogratz, CEO of Galaxy Digital, was on CNBC’s Squawk Box and said “From a market perspective… it feels like we’re coming to the end of it,” and said he started buying again on Monday.
Far more investors, however, view yesterday’s rally as nothing more than a one-day rebound.
“This was a one-day bull market,” CNBC’s Jim Cramer said on “Closing Bell” on Tuesday. “You had stocks that moved so much they basically moved as if the second half of the year is going to be good. I struggle to find out why the second half of the year should be good …I hate this kind of rally. This was a machine driven rally, just like the sell-offs … I want to wait to see.”
Nikolaos Panigirtzoglou, a managing director at JPMorgan, said the rally could be partly due to short sellers covering their positions to grab profits. He said there could be “considerable short covering from here,” which would temporarily lift equity prices.
Others believe it may be nothing more than a simple bounce due to so many stocks being oversold.
Sam Stovall, chief investment officer at CFRA Research said “Even in bear markets, you can end up being oversold, and I think that this market was stretched like a rubber band that, at least in the near term, was ready to snap back.”
That “snap back” rally is adding to the market volatility. Last week, the index climbed to 82.69, beating the highest reading during the 2008 financial crisis. The volatility index (VIX) did drop yesterday 1.2%, to 60.85.
What remains to be seen is if the rally can last for more than a single day, and if buyers will continue showing up before the coronavirus is contained. Many believe that the rally is nothing more than optimism surrounding the stimulus plan, and that a lasting rebound in the markets won’t happen until there’s clear evidence that the coronavirus has slowed.
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