401k Investing for Newbies and Nerds

george l. morgan
  • 5.0 (1)
  • Investing

There are 90 million American workers who have collectively own $14 trillion in their 401k accounts. They face both challenges and opportunities. The largest opportunity is that their accounts are investment accounts, not savings accounts, and for the past three decades, many have grown their balances in the low double digit range. Those with the highest return have constructed portfolios that focus on index funds and avoided target date funds. The main challenge 401k owners face is that there are required to make their investment decisions by choosing from a limited menu of mutual funds. 42% of 401k participants have found that including index funds in their portfolio has provided them with results that optimize their investment experience. The 90 million 401k account owners can be divided into 3 categories. The first are those who could care less about their money and are willing to just take what they are given. 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.  My mission is to motivate 401k participants and their employer plan providers to become engaged in their account and then train them how to optimize their results.  I have a 62-years of stock market experience. I have been a stockbroker, finance professor and individual investor. 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.                       

  1. 2d ago

    Season 2 Episode 14 It's Not a Tug of War When Both Sides Pull in the Same Direction

    Send us Fan Mail Ninety million American workers have a company sponsored 401k retirement program. The percentage of large businesses that offer 401k plans is 98 percent, while the percentage of the small businesses that offer a 401k plan is close to 62 percent. A partial explanation for this disparity lies in the time, expense and effort small business owners must expend in order to put a plan in place and maintain it. But, over the course of the past five years, the number of small businesses offering 401k plans has grown by more than 20 percent. There are multiple reasons why more small business owners are entering the 401k arena. First of all, small business owners want to have a retirement nest egg that is in addition to their company’s equity. Next, offering a 401k plan helps small business owners to attract quality workers that would have otherwise gone to their competitors. Last, but not least, there have been significant changes in 401k plan service providers that have significantly reduced the cost and effort required to institute and operate a 401k plan. The Gallup organization has spent decades studying the impact that the employee’s relationship to their employer has on the growth and profitability of the business. After decades of tracking 17 million workers, Gallup concluded that there are three types of employees. The first and most desirable is the engaged employee, because they feel a connection to the firm and are passionate about what they do. The second type of employee, and the most common, is the not-engaged employee. They check-in, go to their workstation and drift through the day waiting for the closing bell to ring. The third type is the actively disengaged. These people are miserable at what they do. They have a toxic attitude toward the company, and given an opportunity, will undermine the company’s efforts. There are many factors that lead workers to become engaged employees and access to a properly functioning 401k is high on that list. Gallop’s most research found that eighty-one percent of employees they polled said that a 401k retirement plan is an important workplace benefit. Sixty-seven percent of workers are more likely to stay with an employer that offers a 401(k).  Spending your golden years enjoying the good life starts with building a solid nest egg as soon as possible. A wise man once said, “It is not a tug of war when everybody is pulling in the same direction.” So, it behooves both the employers and employees to work together to make their 401k retirement plans both effective and efficient.     Support the show

    Season 2 Episode 14 It's Not a Tug of War When Both Sides Pull in the Same Direction

  2. Jul 10

    Season 2 Episode 12 Pulling Back the Curtain on Target Date Funds

    Send us Fan Mail The Wizard of Oz is a story about a girl from Kansas, who gets sucked up in a tornado, connects with a bunch of odd ball characters and follows a yellow brick road looking for a benevolent wizard. When they get to the wizard’s palace, they pull back the curtain and find that the wizard is nothing more than a con man from Omaha, Nebraska.   40 million Americans own at least one target date fund in their 401K account. What began as a simple, low-cost investment vehicle has evolved into a complex and expensive one. In this episode, I will peel back the curtain on index funds and explain them in a manner that inexperienced investors can understand.   Target-date funds were created in the early 1990s. The goal was to provide investors with a simple, cost-efficient mutual fund that matches the changes in their risk profile as they age. In their early format, TDFs were formulaic and passive. Formulaic and passive funds don’t generate big fees, so it didn’t take long before marketing departments of Wall Street started burning the midnight oil, and the underlying mutual funds in TDFs began to change from passive, inexpensive index funds to more expensive, actively managed funds.   An article in the Wall Street Journal document the most recent change in the TDF saga. Over the past decade, the pressure to cut fees has intensified and employers that sponsor 401k plans have drifted away from some mutual funds. Instead, they have been selecting Collective Investment Trusts. CITs are pools of assets offered by banks, and trust companies that are only available to retirement plans such as 401ks.  Does this mean that 401k participants should avoid Target Date Funds at all cost? No. When properly applied, TDFs have the potential to be the best fund solution for a portion of the 401k population. My goal is to alert 401k participants and their plan providers of the need to do a complete and through due diligence before finalizing their investment decisions.    Support the show

    Season 2 Episode 12 Pulling Back the Curtain on Target Date Funds

  3. Jun 19

    Season 2 Episode 11 Is Your 401k Up To Par - Club Selection

    Send us Fan Mail In my last episode, I made some disparaging remarks about golfers and 401K plan participants. I start this episode with a reader's digest version of my prior commentary. Then I provide a discussion designed to enlighten listeners on how and why to become better managers of their hard-earned retirement dollars.  A golfers handicapped helps them evaluate the quality of their game. There are similar benchmarks that help us evaluate various aspects of our everyday life. There are tables that tell us if we are a 6-foot male, we should weigh 200 lbs. There are Government standards that tell us our two-ton SUV should get 27 mile per gallon. My Cheerios box tells me that when I eat a cup of cereal, I have consumer 45% of the amount of sugar I should consume in a day.   90 million American workers have invested $15 trillion of their hard-earned money in stock market mutual funds. And just like the benchmarks discussed above, there are many who have no clue about the precise amount of return on their hard-earned retirement dollars and how to compare that to what is possible. For most stock market gurus, the benchmark for investment performance is the return of the S&P 500. Over the course of the past 2 ½ years, in spite of all that’s been thrown at it, the S&P 500 has gained 58.6%. A S&P 500 index fund provides investors that same return for a one tent of one percent fee and no assembly required.  There are two other lesser used stock market indexes that some financial experts also use as a proxy for the market; The Dow and the Nasdaq. Their performance for the same time period as I quoted for the S&P, were 44.3% and 73.4% respectfully. A divergence from the return of the standard set by the S&P that is worthy of note. Both have index funds that, just like the S&P 500, mimic their performance. My goal for this episode is to motivate you to do your homework and put a hard number on your investment return, not just “Doing OK.” Then and only then can you answer the question; Do I know as much about the performance of my 401k as I do my golf score?   Support the show

    Season 2 Episode 11 Is Your 401k Up To Par - Club Selection

  4. Jun 3

    Season 2 Episode 10 Is Your 401k Up to Par, The First Tee

    Send us Fan Mail I recently attended a charity fund raiser. After signing in, I took my assigned seat, and soon afterwards my table mate arrived. We exchanged the required pleasantries, and the conversation quickly turned to golf. She explained to me that she had taken dozens of expensive golf lessons with a local golf pro to improve her handicap but had not been able to get into the single didge range. Then a fellow golfer suggested a free online video and two months later her handicap plummeted to 7. (For those of you non golfers, a handicap of 0 means your average score is par. A handicap of 15 means your average score is 15 strokes more than par)  The discussion then turned to turned to a topic closer to my wheelhouse: 401ks. My table mate explained to me that she had a similar experience with their 401k. For several years, she felt her account was doing poorly. Then a co-worker told her about a red-hot mutual fund. She bought a bunch of it and suddenly her returns dramatically improved.    You will notice in the case of her golf handicap, there was a great deal of specificity. She knew exactly what her handicapped was before and after the video. She had a precise number for her desired score. But as I quizzed her about her 401k’s performance, she failed to produce exact numbers, just vague generalities and feelings. She had no clue as to how the market had performed for the past several years or for that matter what was an acceptable rate of return, given her limited 401k options.     As the conversation continued, I became befuddled by the fact that a person in her position knew so much about her golf score and so little about the performance of her greatest financial asset. Having spent five decades of my life talking to people about their finances, I also realized that this was not in a one off situation.   This Episode is the first in a long series of discussions on how to evaluate your 401k results and help you build a 401k portfolio that makes sure that  YOUR 401k IS A GIFT THE KEEPS ON GIVING.     Support the show

    Season 2 Episode 10 Is Your 401k Up to Par, The First Tee

  5. May 18

    Season 2 Episode 9 A Crummy Gold Watch and An Itty-Bitty Pension Check

    Send us Fan Mail To my parents' generation, financial security meant working for the same company your whole life. Then when you turned 65, they gave you a gold watch, and once a month you trundled out to the mailbox to get your lousy pension check. The size of the check never changed, and you hoped like hell that the company you devoted your life to didn't go broke. And if you were the breadwinner of the family and you died, good luck to your heirs.  In 1978, all that began to change. That was the year that the 401k program came into being and it was both revolutionary and evolutionary. It took the responsibility for providing for one’s retirement finances out of the hands of the employer and put it in the hands of the employee. For some, this was fantastic news, and for others it was a non-event.  A recent study by the University of Texas documents how dramatically different the program impacts individual account owners. The Texas study took data from 401k participants between the ages of 50 and 60 and found some revealing results; The average account balance for this group was $843,742, but the median figure was only $158,272.  Next the researchers analyzed the investment choices of the 50 to 60 age group. The discovered that 78% of the accounts with larger than average balances were concentrated in stock mutual funds, predominantly index mutual funds. Those accounts with balances below the median had a higher portion of their assets in target date funds. Target date funds hold a mix of stocks and bonds and as the owner ages, the stock portion declines and the bond portion increases. There are two factors that contribute to the growth of a 401k account. The first is the employees payroll contribution. Next are the investment decisions made by the account owner. And here the employer has not been totally removed from the picture. They have the responsibility for determining the mutual funds listed in the plan’s investment menu. While it is impossible to determine the exact impact the investment choices have on asset growth, both parties, employers and employees, must do their homework in order to optimize the outcome.   Support the show

    Season 2 Episode 9 A Crummy Gold Watch and An Itty-Bitty Pension Check

  6. May 7

    Season 2 Episode 8 A Billion Here, A Billion There

    Send us Fan Mail During a 1963 debate on the federal budget, the Senior Senator from Illinois, Everett Dirksen proclaimed, “a billion here, a billion there, and pretty soon it starts to add up to real money.” Dirksen didn't use exact numbers, and that was not his intent. He used hyperbole to point out that the proposed level of federal spending would have significant impact on the lives of the American public. The same thing can be said about the current state of our nation’s 401k program: “It is starting to add up to real money.” As it was in Dirkson’s case, the numbers I am about to present are not precise, but because of the massive dollar amount involved, lack of specificity does not diminish the significant role our 401k plan plays in the lives those living out their golden years. The 401k program became the law of the land in 1978. It allows workers to place a portion of their paycheck into a tax sheltered account that will become their primary income source once they retire.  The growth of an individual 401k account has two distinct components. First, there is the additional dollars being added from the participants payroll deductions. Next is the growth of the investments selected by the account’s owner. The program requires the account owner to decide how the assets of the account are invested, but their choices are limited to a small number of mutual funds provided by their plan administrator.   When we entered the twenty-fist century the total value of the 401k program was $1.7 trillion. During the years from 2000 to 2026, the S&P 500 index grew 4 and a half times. Sevent-six percent of all 401k accounts contain equity mutual funds and as we entered 2026 the total value of the 401k assets exceeded $14 trillion.  It is impossible to calculate what percent of this impressive growth in 401k assets can be attributed to payroll deductions and how much to invest gain. But let’s assume that the gain from the investment portion is a meager 25 percent of the total. That translates to $3.5 trillion added to workers retirement accounts due to prudent investing.  Support the show

    Season 2 Episode 8 A Billion Here, A Billion There

  7. Apr 23

    Season 2 Episode 7 Gen X 10, Wall Street Techies Zip

    Send us Fan Mail When I was a kid, our family car had air conditioning, It was a little triangular shaped window that you flipped around and it blew air on your face. Our family car also had power windows. There was a crank on the door and you were the power. Fact checking involved going to the library and digging through 28 volumes of the Encyclopedia Britanica. But that was then and this is now. My grandkids can’t get out of bed without checking their cell phone. Technology is everywhere and more is on the way in the form of the newfangled AI contraption. Not to be left in the dust, the marketing mental giants of Wall Street have decided to jump on the AI bandwagon. A recent article in the Wall Street Journal outlined how the legacy Wall Street banks are using AI to create NEW investment strategies for the wealthiest clients? Oh, and by the way, it is Wall Street's favorite new way of making money. The WSJ article quoted the managing director of one of the new hi-tech as saying, “Portfolio managers and financial analysts cost money and get bonuses. Computers don’t.”  Before you run out and bet the farm on the latest and greatest new AI technology, let me point out to you that we've been down this road before, and we learned a long time ago that this dog don't hunt. One issue the WSJ article didn’t address was how well these snake oil computer programs perform. To quote Groucho Marx, they're like an ugly stripper: They want to reveal as little as possible.” Because these new funds are nothing more than renamed hedge funds with bigger computers, we can sneak behind the curtain for a glance at how they may perform. Last year, 20% of all of the nation's hedge funds declared bankruptcy and went out of business.  To prove to you that the more things change, the more things stay the same, let me tell you the story of the 25 million Gen Xers who, on average, have amassed $583,800 in their 401k by doing simply, non-technical things. They bought low cost index funds, ignored the Wall Street mavins jibber jabber and just hung on to them for more than a decade. Index funds are the 401k investment equivalent to the triangular air conditioning window on my family’s 1949 Ford.      Support the show

    Season 2 Episode 7 Gen X 10, Wall Street Techies Zip

  8. Apr 16

    Season 2 Episode 6 An Interview with a level 10 401k Nerd

    Send us Fan Mail In this episode I spent time with Jake Olsen talking about his 401k experiences.  Jake is a millennial and a Level 10 401k Nerd. I have known Jake for over 15 years. When we first met, Jake was a college student majoring in accounting & finance. Following graduation, he took a job in the finance department of a local Fortune 500 company. During his time there, Jake studied for and completed the Chartered Financial Analyst program. 8 years ago, Jake left the Fortune 500 world and became a co-director at a consulting firm whose mission is to help CEOs at small to mid-sized companies grow their businesses by tying together the key components of financial planning, budgeting, performance analytics, strategy management, and deal management. Jake has 15 years’ experience in managing his own 401k. One with a large corporation and one where he was able to provide input. I found the time I spent with him constructive and informative. One issue in particular I found insightful was his perspective of the value of academic training when applied to the real world. I am sure you will find his responses to my questions enlightening, and hopefully they will open some new doors in your world.     Support the show

    Season 2 Episode 6 An Interview with a level 10 401k Nerd
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About

There are 90 million American workers who have collectively own $14 trillion in their 401k accounts. They face both challenges and opportunities. The largest opportunity is that their accounts are investment accounts, not savings accounts, and for the past three decades, many have grown their balances in the low double digit range. Those with the highest return have constructed portfolios that focus on index funds and avoided target date funds. The main challenge 401k owners face is that there are required to make their investment decisions by choosing from a limited menu of mutual funds. 42% of 401k participants have found that including index funds in their portfolio has provided them with results that optimize their investment experience. The 90 million 401k account owners can be divided into 3 categories. The first are those who could care less about their money and are willing to just take what they are given. 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.  My mission is to motivate 401k participants and their employer plan providers to become engaged in their account and then train them how to optimize their results.  I have a 62-years of stock market experience. I have been a stockbroker, finance professor and individual investor. 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.                       

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